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Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida

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Author Info

  • Erwann Michel-Kerjan

    (The Wharton School - University of Pennsylvania, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Carolyn Kousky

    (Resources for the Future - (-))

Abstract

In the U.S., flood insurance is provided essentially through the National Flood Insurance Program (NFIP), a public-private program established in 1968. In the past 10 years, the program has radically expanded to cover $1.1 trillion in assets today. This paper provides a detailed analysis of the largest flood insurance sample ever studied by focusing on the state of Florida, which accounts for 40 percent of the entire NFIP portfolio. We study the demand for flood insurance with a database of more than 7.5 million flood policies-in-force for the years 2000-2005, and all the claims filed in Florida during that period. We answer four questions: What are the characteristics of the buyers of flood insurance? What types of contracts (deductibles and coverage levels) are purchased? Where and when are claims paid and to what extent does mitigation work? How are prices determined and how much does NFIP insurance cost? Given the recent significant increase in the cost of catastrophes worldwide and the debate about the role that insurance can play to enhance adaptation to climate change, the responses to these questions shall be of interest to other countries too.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00372387.

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Date of creation: 01 Apr 2009
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Handle: RePEc:hal:wpaper:hal-00372387

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Keywords: Flood hazard - Insurance - NFIP - Florida - Catastrophe financing;

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References

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  1. 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.
  2. Howard C. Kunreuther & Erwann O. Michel-Kerjan, 2007. "Climate Change, Insurability of Large-scale Disasters and the Emerging Liability Challenge," NBER Working Papers 12821, National Bureau of Economic Research, Inc.
  3. Dwight Jaffee & Howard Kunreuther & Erwann Michel-Kerjan, 2008. "Long Term Insurance (LTI) for Addressing Catastrophe Risk," NBER Working Papers 14210, National Bureau of Economic Research, Inc.
  4. 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.
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Citations

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Cited by:
  1. Grislain-Letrémy, Céline & Villeneuve, Bertrand, 2011. "Natural and Industrial Disasters : Land Use and Insurance," Economics Papers from University Paris Dauphine 123456789/7845, Paris Dauphine University.
  2. Calvet, Lucie & Grislain-Letrémy, Céline, 2010. "L’assurance habitation dans les départements d’Outre Mer," Economics Papers from University Paris Dauphine 123456789/4338, Paris Dauphine University.
  3. Alexandros-Andreas Kyrtsis, 2011. "Insurance of Techno-Organizational Ventures and Procedural Ethics: Lessons from the Deepwater Horizon Explosion," Journal of Business Ethics, Springer, vol. 103(1), pages 45-61, April.
  4. Roy Brouwer & Marije Schaafsma, 2013. "Modelling risk adaptation and mitigation behaviour under different climate change scenarios," Climatic Change, Springer, vol. 117(1), pages 11-29, March.
  5. Paul A. Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2010. "Uncertainty of Governmental Relief and the Crowding out of Insurance," Monash Economics Working Papers 05-10, Monash University, Department of Economics.
  6. Botzen, W.J.W. & van den Bergh, J.C.J.M., 2012. "Risk attitudes to low-probability climate change risks: WTP for flood insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 151-166.
  7. Paul Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2013. "Uncertainty of Governmental Relief and the Crowding out of Flood Insurance," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(2), pages 179-200, February.
  8. Ginger Turner & Farah Said & Uzma Afzal, 2014. "Microinsurance Demand After a Rare Flood Event: Evidence From a Field Experiment in Pakistan," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 39(2), pages 201-223, April.
  9. Landry, Craig E. & Jahan-Parvar, Mohammad R., 2008. "Flood Insurance Coverage in the Coastal Zone," MPRA Paper 15498, University Library of Munich, Germany.
  10. Bin, Okmyung & Bishop, John A. & Kousky, Carolyn, 2011. "Redistributional Effects of the National Flood Insurance Program," Discussion Papers, Resources For the Future dp-11-14, Resources For the Future.
  11. Botzen, W.J. Wouter & de Boer, Joop & Terpstra, Teun, 2013. "Framing of risk and preferences for annual and multi-year flood insurance," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 357-375.
  12. Erwann O. Michel-Kerjan, 2010. "Catastrophe Economics: The National Flood Insurance Program," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 165-86, Fall.
  13. Kousky, Carolyn & Kunreuther, Howard C., 2009. "Improving Flood Insurance and Flood Risk Management: Insights from St. Louis, Missouri," Discussion Papers, Resources For the Future dp-09-07, Resources For the Future.
  14. Lee, Jihyun & Petrolia, Daniel R. & Ferraez, Will T., 2011. "Flood Insurance Demand along the Gulf and Florida Coast," 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas 99239, Southern Agricultural Economics Association.
  15. Atreya, Ajita & Ferreira, Susana, 2013. "An Evaluation of the National Flood Insurance Program in Georgia," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida, Southern Agricultural Economics Association 143046, Southern Agricultural Economics Association.

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