Insurability and government-funded mitigation: safer but costlier

Dahui Liu, Linda Nozick (), Meghan Millea, Jamie Kruse, Rachel Davidson, Joseph Trainor, Junkan Li and Caroline Williams
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Dahui Liu: Donghua University
Linda Nozick: Cornell University
Meghan Millea: East Carolina University
Jamie Kruse: East Carolina University
Rachel Davidson: University of Delaware
Joseph Trainor: University of Delaware
Junkan Li: Cornell University
Caroline Williams: University of Delaware

The Geneva Papers on Risk and Insurance - Issues and Practice, 2025, vol. 50, issue 2, No 4, 365-380

Abstract: Abstract Hurricanes significantly harm homeowners through physical damage and long-term financial strain due to rising insurance costs, property value loss, and repair expenses. This paper focuses on the interrelated decisions of the government mitigation funding of residential acquisitions and retrofit subsidies and of price restrictions on the insurance market in eastern North Carolina to determine the financial effects on stakeholders. The introduction of these policy interventions have impacts that propagate through the system due to risk adjustments, homeowner take-up behaviour, and insurer profit-maximising behaviour. This study uses an integrated game theoretic model to demonstrate that there are cost-effective government spending levels that reduce residential loss from hurricane damage. When insurance prices are capped at preintervention levels, the number of households and their distribution of losses, which has been altered through mitigation, leads to increased insurer insolvency. When insurance prices are allowed to adjust after mitigation, some homeowners find insurance is no longer affordable. This highlights the tradeoff between ensuring insurer stability and expanding homeowner insurance accessibility.

Keywords: Insurance pricing; Household insurability; Hurricane; Buyouts and retrofits; Insurer solvency (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41288-024-00342-z

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