The Relationship Between Deductibles and Wealth: The Case of Flood Insurance
This paper examines the effect of wealth on the demand for deductibles both theoretically and empirically for the case of flood insurance. Our study provides a synthesis and empirical examination of the economic theory of deductibles and its relationship with wealth. Previous articles have not examined these issues empirically, in particular for the specific case of flood insurance. We concentrate on extending the economic theory of deductibles and its relationship with wealth to the specific case of flood insurance. An enormous accounting database from the National Flood Insurance Program (NFIP), which includes more than 3.2 million insureds in 1998, is used in this study. The empirical findings demonstrate that about 63 percent of the insureds buy the minimum mandatory deductible, regardless of wealth, and about 37 percent of the insureds buy higher deductible as wealth increases. Preliminary regressions show that for the first group of insureds, the deductible is not significantly associated with wealth and the hazard zone (the flood risk). However, the major regression analyses demonstrate that for the second group of insureds, the amount of deductible selected is positively associated with increasing wealth and negatively associated with increasing the flood risk. For this second group, the overall regressions and the estimated coefficients for the explanatory variables are statistically significant.
Volume (Year): 22 (1999)
Issue (Month): 1 ()
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:wri:journl:v:22:y:1999:i:1:p:78-97. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (James Barrese)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.