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Flood Insurance Coverage in the Coastal Zone

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  • Craig E. Landry
  • Mohammad R. Jahan‐Parvar

Abstract

We explore behavior and test theory regarding the determinants of flood insurance coverage in the coastal zone using household-level data for nine southeastern counties. We use Tobit regression models to assess the importance and magnitude of insurance cost, risk factors, community characteristics, and household attributes on flood insurance purchase for residential building structures. Overall estimates indicate price inelastic demand, though subsidized policyholders are more sensitive to price and hold greater flood insurance coverage (controlling for value of asset at risk). We find support for rational choice in the coastal zone, with flood insurance coverage positively correlated in the level of flood risk. We find evidence that coastal erosion risk effects flood insurance demand, and that community level erosion hazard mitigation projects influence flood insurance holdings, with shoreline armoring appearing to act as a substitute and beach replenishment appearing to act as a complement.

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Bibliographic Info

Article provided by The American Risk and Insurance Association in its journal The Journal of Risk and Insurance.

Volume (Year): 78 (2011)
Issue (Month): 2 (06)
Pages: 361-388

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Handle: RePEc:bla:jrinsu:v:78:y:2011:i:2:p:361-388

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  1. Luigi Guiso & Tullio Jappelli, 1998. "Background Uuncertainty and the Demand for Insurance against Insurable Risks," CSEF Working Papers 02, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
  3. Warren Kriesel & Craig Landry, 2004. "Participation in the National Flood Insurance Program: An Empirical Analysis for Coastal Properties," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 405-420.
  4. Kunreuther, Howard & Sanderson, Warren & Vetschera, Rudolf, 1985. "A behavioral model of the adoption of protective activities," Journal of Economic Behavior & Organization, Elsevier, vol. 6(1), pages 1-15, March.
  5. Erwann O. Michel-Kerjan & Carolyn Kousky, 2010. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 369-397.
  6. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
  7. Browne, Mark J & Hoyt, Robert E, 2000. " The Demand for Flood Insurance: Empirical Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 291-306, May.
  8. McClelland, Gary H & Schulze, William D & Coursey, Don L, 1993. " Insurance for Low-Probability Hazards: A Bimodal Response to Unlikely Events," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 95-116, August.
  9. Don N. MacDonald & James C. Murdoch & Harry L. White, 1987. "Uncertain Hazards, Insurance, and Consumer Choice: Evidence from Housing Markets," Land Economics, University of Wisconsin Press, vol. 63(4), pages 361-371.
  10. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
  11. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197.
  12. William D. Nordhaus, 2006. "The Economics of Hurricanes in the United States," NBER Working Papers 12813, National Bureau of Economic Research, Inc.
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