What's at Stake? Understanding the Role of Home Equity in Flood Insurance Demand

Liao, Yanjun (Penny) and Philip Mulder
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Liao, Yanjun (Penny): Resources for the Future

No 21-25, RFF Working Paper Series from Resources for the Future

Abstract: Millions of properties are exposed to increasing threats from natural disasters. Yet, many at-risk homes are uninsured against the costliest disaster: flooding. We show that low home equity is an important driver of low flood insurance take-up. To isolate the causal effect of home equity on flood insurance demand, we exploit price changes over the housing boom and bust. Insurance take-up follows house price dynamics closely, with a home price elasticity around 0.3. Multiple mechanism tests suggest that mortgage default acts as implicit disaster insurance. As a result, households do not fully internalize their disaster risk.Click "Download" above to read the full paper.

Date: 2021-08-17
New Economics Papers: this item is included in nep-des, nep-rmg and nep-ure
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Citations: View citations in EconPapers (2)

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