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Flood Insurance Coverage in the Coastal Zone

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  • Landry, Craig E.
  • Jahan-Parvar, Mohammad R.

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

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15498.

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Date of creation: Nov 2008
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Handle: RePEc:pra:mprapa:15498

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Keywords: Insurance coverage; flood; hazard; coastal; erosion; Tobit model;

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  1. Howard Kunreuther & Mark Pauly, 2004. "Neglecting Disaster: Why Don't People Insure Against Large Losses?," Journal of Risk and Uncertainty, Springer, Springer, vol. 28(1), pages 5-21, January.
  2. Erwann Michel-Kerjan & Carolyn Kousky, 2009. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Working Papers, HAL hal-00372387, HAL.
  3. William D. Nordhaus, 2006. "The Economics of Hurricanes in the United States," NBER Working Papers 12813, National Bureau of Economic Research, Inc.
  4. Kunreuther, Howard & Sanderson, Warren & Vetschera, Rudolf, 1985. "A behavioral model of the adoption of protective activities," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 6(1), pages 1-15, March.
  5. 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.
  6. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 0262232588, December.
  7. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
  8. Browne, Mark J & Hoyt, Robert E, 2000. " The Demand for Flood Insurance: Empirical Evidence," Journal of Risk and Uncertainty, Springer, Springer, vol. 20(3), pages 291-306, May.
  9. 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, The American Risk and Insurance Association, vol. 71(3), pages 405-420.
  10. Luigi Guiso & Tullio Jappelli, 1998. "Background Uncertainty and the Demand for Insurance Against Insurable Risks," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 23(1), pages 7-27, June.
  11. 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, Springer, vol. 7(1), pages 95-116, August.
  12. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, Econometric Society, vol. 41(6), pages 997-1016, November.
  13. Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, Springer, vol. 12(2-3), pages 171-87, May.
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Cited by:
  1. C. Grislain-Letrémy, 2013. "Natural Disasters: Exposure and Underinsurance," Documents de Travail de la DESE - Working Papers of the DESE, Institut National de la Statistique et des Etudes Economiques, DESE g2013-12, Institut National de la Statistique et des Etudes Economiques, DESE.
  2. Tsvetan Tsvetanov & Farhed Shah, 2013. "The economic value of delaying adaptation to sea-level rise: An application to coastal properties in Connecticut," Climatic Change, Springer, Springer, vol. 121(2), pages 177-193, November.
  3. Céline Grislain-Letremy, 2013. "Natural Disters : Exposure and Underinsurance," Working Papers, Centre de Recherche en Economie et Statistique 2013-15, Centre de Recherche en Economie et Statistique.
  4. Grislain-Letrémy, Céline, 2013. "Natural Disasters: Exposure and Underinsurance," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/13276, Paris Dauphine University.
  5. Erwann Michel-Kerjan & Paul Raschky & Howard Kunreuther, 2013. "Corporate Demand for Insurance: New Evidence from the U.S. Terrorism and Property Markets," NBER Working Papers 19532, National Bureau of Economic Research, Inc.
  6. Bin, Okmyung & Landry, Craig E., 2013. "Changes in implicit flood risk premiums: Empirical evidence from the housing market," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 361-376.

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