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To Improve Is to Change? The Effects of Risk Rating 2.0 on Flood Insurance Demand

Author

Listed:
  • Ortega, Francesc

    (Queens College, CUNY)

  • Petkov, Ivan

    (Northeastern University)

Abstract

We present a theory of the demand for flood insurance and empirically analyze the effects of the adoption of Risk Rating 2.0, using individual insurance histories for all NFIP policies. The reform increased exit and reduced entry, both in the flood zone and its periphery. The reform had highly heterogeneous effects on insurance costs and triggered adjustments in coverage and deductibles. On average, RR2 increased costs for renewers outside of the flood zone but lowered them for renewers in the flood zone, resulting in an overall average increase. However, the reform reduced revenue and increased financial exposure to flood risk.

Suggested Citation

  • Ortega, Francesc & Petkov, Ivan, 2024. "To Improve Is to Change? The Effects of Risk Rating 2.0 on Flood Insurance Demand," IZA Discussion Papers 17021, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp17021
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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