The Influence of Natural Disasters on the Take-up Rates for Flood Insurance in Texas—A Panel Approach

One of the most valuable assets that most families have is their primary residence. Most homes, particularly those carrying mortgages, have homeowner’s insurance policies protecting the structure and contents from a list of various perils. One peril, or loss event, that is typically not covered by homeowner policies is flooding or damage caused by flood waters. Unfortunately, many homeowners neglect to carry or drop flood insurance, leaving them financially vulnerable to the risk of floods. Despite the risks, the National Flood Insurance Program continues to experience low participation rates. This research seeks to add to the existing literature by examining how natural disasters, including floods, tropical cyclones, and wildfires, influence the take-up rates for flood insurance in Texas. The initial findings show that take-up rates for flood insurance increase with statistical significance after a flood or tropical cyclone event, while showing no statistically significant change with wildfires. These findings show that major flood and tropical cyclone events contribute to an increase in flood insurance take-up rates even after five years. Financial planners, insurance agents, and FEMA (the Federal Emergency Management Agency) need to improve education regarding the risk of flooding and the increased risk of flooding after a wildfire, and use risk-framing in their efforts to help increase participation rates in the National Flood Insurance Program.