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Insurability and government-funded mitigation: safer but costlier

Author

Listed:
  • Dahui Liu

    (Donghua University)

  • Linda Nozick

    (Cornell University
    Cornell University)

  • Meghan Millea

    (East Carolina University)

  • Jamie Kruse

    (East Carolina University)

  • Rachel Davidson

    (University of Delaware)

  • Joseph Trainor

    (University of Delaware)

  • Junkan Li

    (Cornell University)

  • Caroline Williams

    (University of Delaware)

Abstract

Hurricanes significantly harm homeowners through physical damage and long-term financial strain due to rising insurance costs, property value loss, and repair expenses. This paper focuses on the interrelated decisions of the government mitigation funding of residential acquisitions and retrofit subsidies and of price restrictions on the insurance market in eastern North Carolina to determine the financial effects on stakeholders. The introduction of these policy interventions have impacts that propagate through the system due to risk adjustments, homeowner take-up behaviour, and insurer profit-maximising behaviour. This study uses an integrated game theoretic model to demonstrate that there are cost-effective government spending levels that reduce residential loss from hurricane damage. When insurance prices are capped at preintervention levels, the number of households and their distribution of losses, which has been altered through mitigation, leads to increased insurer insolvency. When insurance prices are allowed to adjust after mitigation, some homeowners find insurance is no longer affordable. This highlights the tradeoff between ensuring insurer stability and expanding homeowner insurance accessibility.

Suggested Citation

  • Dahui Liu & Linda Nozick & Meghan Millea & Jamie Kruse & Rachel Davidson & Joseph Trainor & Junkan Li & Caroline Williams, 2025. "Insurability and government-funded mitigation: safer but costlier," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 50(2), pages 365-380, April.
    • Handle: RePEc:pal:gpprii:v:50:y:2025:i:2:d:10.1057_s41288-024-00342-z
    DOI: 10.1057/s41288-024-00342-z
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    References listed on IDEAS

    as
    1. Eugene Frimpong & Jamie Kruse & Gregory Howard & Rachel Davidson & Joseph Trainor & Linda Nozick, 2019. "Measuring Heterogeneous Price Effects for Home Acquisition Programs in At‐Risk Regions," Southern Economic Journal, John Wiley & Sons, vol. 85(4), pages 1108-1131, April.
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    5. Dong Wang & Rachel A. Davidson & Joseph E. Trainor & Linda K. Nozick & Jamie Kruse, 2017. "Homeowner purchase of insurance for hurricane-induced wind and flood damage," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 88(1), pages 221-245, August.
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