IDEAS home Printed from https://ideas.repec.org/a/wly/riskan/v37y2017i3p517-530.html
   My bibliography  Save this article

Disasters as Learning Experiences or Disasters as Policy Opportunities? Examining Flood Insurance Purchases after Hurricanes

Author

Listed:
  • Carolyn Kousky

Abstract

Flood insurance is a critical risk management strategy, contributing to greater resilience of individuals and communities. The occurrence of disasters has been observed to alter risk management choices, including the decision to insure. This has previously been explained by learning and behavioral biases. When it comes to flood insurance, however, federal disaster aid policy could also play a role since recipients of aid are required to maintain insurance. Using a database of flood insurance policies for all states on the Atlantic and Gulf coasts of the United States between 2001 and 2010, this article uses fixed effects models to examine how take‐up rates respond to the occurrence of hurricanes and tropical storms, as well as disaster declarations and aid requirements. Being hit by at least one hurricane in the previous year increases net flood insurance purchases by 7.2%. This effect dies out by three years after the storm. A presidential disaster declaration for floods increases take‐up rates by 6.7%. When disaster aid grants are made available to households, take‐up rates increase by 5%; this accounts for the majority of the increase in policies after occurrence of a hurricane. When the models are estimated taking into account which policies are required by disaster aid, hurricanes are estimated to lead to only a 1.5% increase in voluntary purchases. This overlooked federal policy that disaster aid recipients insure is responsible for a majority of insurance purchases postdisaster.

Suggested Citation

  • Carolyn Kousky, 2017. "Disasters as Learning Experiences or Disasters as Policy Opportunities? Examining Flood Insurance Purchases after Hurricanes," Risk Analysis, John Wiley & Sons, vol. 37(3), pages 517-530, March.
  • Handle: RePEc:wly:riskan:v:37:y:2017:i:3:p:517-530
    DOI: 10.1111/risa.12646
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/risa.12646
    Download Restriction: no

    File URL: https://libkey.io/10.1111/risa.12646?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Atreya, Ajita & Ferreira, Susana & Michel-Kerjan, Erwann, 2015. "What drives households to buy flood insurance? New evidence from Georgia," Ecological Economics, Elsevier, vol. 117(C), pages 153-161.
    2. Kunreuther,Howard C. & Pauly,Mark V. & McMorrow,Stacey, 2013. "Insurance and Behavioral Economics," Cambridge Books, Cambridge University Press, number 9780521608268.
    3. Craig E. Landry & Mohammad R. Jahan‐Parvar, 2011. "Flood Insurance Coverage in the Coastal Zone," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(2), pages 361-388, June.
    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.
    5. Kousky, Carolyn & Michel-Kerjan, Erwann O. & Raschky, Paul A., 2018. "Does federal disaster assistance crowd out flood insurance?," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 150-164.
    6. Kousky, Carolyn & Shabman, Leonard, 2014. "Pricing Flood Insurance: How and Why the NFIP Differs from a Private Insurance Company," RFF Working Paper Series dp-14-37, Resources for the Future.
    7. Kunreuther,Howard C. & Pauly,Mark V. & McMorrow,Stacey, 2013. "Insurance and Behavioral Economics," Cambridge Books, Cambridge University Press, number 9780521845724.
    8. 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, September.
    9. Erwann O. Michel‐Kerjan & Carolyn Kousky, 2010. "Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 369-397, June.
    10. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    11. Erwann Michel‐Kerjan & Sabine Lemoyne de Forges & Howard Kunreuther, 2012. "Policy Tenure Under the U.S. National Flood Insurance Program (NFIP)," Risk Analysis, John Wiley & Sons, vol. 32(4), pages 644-658, April.
    12. Howard Kunreuther & Mark Pauly, 2015. "Insurance Decision-Making For Rare Events: The Role Of Emotions," NBER Working Papers 20886, National Bureau of Economic Research, Inc.
    13. Ajita Atreya & Susana Ferreira & Warren Kriesel, 2013. "Forgetting the Flood? An Analysis of the Flood Risk Discount over Time," Land Economics, University of Wisconsin Press, vol. 89(4), pages 577-596.
    14. Carolyn Kousky, 2010. "Learning from Extreme Events: Risk Perceptions after the Flood," Land Economics, University of Wisconsin Press, vol. 86(3).
    15. Justin Gallagher, 2014. "Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States," American Economic Journal: Applied Economics, American Economic Association, vol. 6(3), pages 206-233, July.
    16. Jared Carbone & Daniel Hallstrom & V. Smith, 2006. "Can Natural Experiments Measure Behavioral Responses to Environmental Risks?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(3), pages 273-297, March.
    17. Carmen Keller & Michael Siegrist & Heinz Gutscher, 2006. "The Role of the Affect and Availability Heuristics in Risk Communication," Risk Analysis, John Wiley & Sons, vol. 26(3), pages 631-639, June.
    18. Daniel R. Petrolia & Craig E. Landry & Keith H. Coble, 2013. "Risk Preferences, Risk Perceptions, and Flood Insurance," Land Economics, University of Wisconsin Press, vol. 89(2), pages 227-245.
    19. Okmyung Biny & Stephen Polasky, 2004. "Effects of Flood Hazards on Property Values: Evidence Before and After Hurricane Floyd," Land Economics, University of Wisconsin Press, vol. 80(4).
    20. Michael Siegrist & Heinz Gutscher, 2006. "Flooding Risks: A Comparison of Lay People's Perceptions and Expert's Assessments in Switzerland," Risk Analysis, John Wiley & Sons, vol. 26(4), pages 971-979, August.
    21. 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;The Geneva Association, vol. 39(2), pages 201-223, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Borisova, Ekaterina & Gründler, Klaus & Hackenberger, Armin & Harter, Anina & Potrafke, Niklas & Schoors, Koen, 2023. "Crisis experience and the deep roots of COVID-19 vaccination preferences," European Economic Review, Elsevier, vol. 160(C).
    2. Xu, Yilan & Huang, Yi, 2022. "Does climate change news inform flood insurance take?," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322178, Agricultural and Applied Economics Association.
    3. Aaron B. Gertz & James B. Davies & Samantha L. Black, 2019. "A CGE Framework for Modeling the Economics of Flooding and Recovery in a Major Urban Area," Risk Analysis, John Wiley & Sons, vol. 39(6), pages 1314-1341, June.
    4. Che, Yuyuan & Feng, Hongli & Hennessy, David A., 2017. "The Geography and Psychology of Participation in U.S. Federal Crop Insurance Programs," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259190, Agricultural and Applied Economics Association.
    5. 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, Institute of Labor Economics (IZA).
    6. Chloe H. Lucas & Kate I. Booth & Carolina Garcia, 2021. "Insuring homes against extreme weather events: a systematic review of the research," Climatic Change, Springer, vol. 165(3), pages 1-21, April.
    7. Meri Davlasheridze & Qin Fan, 2019. "Valuing Seawall Protection in the Wake of Hurricane Ike," Economics of Disasters and Climate Change, Springer, vol. 3(3), pages 257-279, October.
    8. Diana Mitsova & Monica Escaleras & Alka Sapat & Ann-Margaret Esnard & Alberto J. Lamadrid, 2019. "The Effects of Infrastructure Service Disruptions and Socio-Economic Vulnerability on Hurricane Recovery," Sustainability, MDPI, vol. 11(2), pages 1-16, January.
    9. Matthew E. Kahn & V. Kerry Smith, 2017. "The Affordability Goal and Prices in the National Flood Insurance Program," NBER Working Papers 24120, National Bureau of Economic Research, Inc.
    10. Qing Miao, 2019. "Are We Adapting to Floods? Evidence from Global Flooding Fatalities," Risk Analysis, John Wiley & Sons, vol. 39(6), pages 1298-1313, June.
    11. Jana Lorena Werg & Torsten Grothmann & Michael Spies & Harald A. Mieg, 2020. "Factors for Self-Protective Behavior against Extreme Weather Events in the Philippines," Sustainability, MDPI, vol. 12(15), pages 1-25, July.
    12. Ambika Markanday & Steffen Kallbekken & Ibon Galarraga, 2022. "The power of impact framing and experience for determining acceptable levels of climate change-induced flood risk: a lab experiment," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(2), pages 1-18, February.
    13. Andrew Royal & Margaret Walls, 2019. "Flood Risk Perceptions and Insurance Choice: Do Decisions in the Floodplain Reflect Overoptimism?," Risk Analysis, John Wiley & Sons, vol. 39(5), pages 1088-1104, May.
    14. Moore, Zachary, 2018. "An Examination of Recency Bias Effects on Crop Insurance Purchases in the Mississippi Delta Region," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266711, Southern Agricultural Economics Association.
    15. V. Kerry Smith & Ben Whitmore, 2019. "Amenities, Risk, and Flood Insurance Reform," NBER Working Papers 25580, National Bureau of Economic Research, Inc.
    16. Meri Davlasheridze & Qing Miao, 2021. "Does post-disaster aid promote community resilience? Evidence from federal disaster programs," 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. 109(1), pages 63-88, October.
    17. Liao, Yanjun (Penny) & Sølvsten, Simon & Whitlock, Zachary, 2024. "Community Responses to Flooding in Risk Mitigation Actions: Evidence from the Community Rating System," RFF Working Paper Series 24-08, Resources for the Future.
    18. repec:ags:aaea22:335586 is not listed on IDEAS
    19. Petkov, Ivan & Ortega, Francesc, 2024. "Flood Risk and Insurance Take-up in the Flood Zone and Its Periphery," IZA Discussion Papers 16922, Institute of Labor Economics (IZA).
    20. Stefan Borsky & Hannah Hennighausen, 2022. "Public Flood Risk Mitigation and the Homeowner’s Insurance Demand Response," Land Economics, University of Wisconsin Press, vol. 98(4), pages 537-559.
    21. Yilan Xu & Sébastien Box‐Couillard, 2024. "Social learning about climate risks," Economic Inquiry, Western Economic Association International, vol. 62(3), pages 1172-1191, July.
    22. Yuyuan Che & Hongli Feng & David A. Hennessy, 2020. "Recency effects and participation at the extensive and intensive margins in the U.S. Federal Crop Insurance Program," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(1), pages 52-85, January.
    23. Duc Duy Nguyen & Steven Ongena & Shusen Qi & Vathunyoo Sila, 2022. "Climate Change Risk and the Cost of Mortgage Credit [Does climate change affect real estate prices? Only if you believe in it]," Review of Finance, European Finance Association, vol. 26(6), pages 1509-1549.
    24. Liao, Yanjun (Penny) & Mulder, Philip, 2021. "What's at Stake? Understanding the Role of Home Equity in Flood Insurance Demand," RFF Working Paper Series 21-25, Resources for the Future.
    25. Bradt, Jacob T. & Kousky, Carolyn & Wing, Oliver E.J., 2021. "Voluntary purchases and adverse selection in the market for flood insurance," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carolyn Kousky & Erwann Michel-Kerjan, 2017. "Examining Flood Insurance Claims in the United States: Six Key Findings," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(3), pages 819-850, September.
    2. Meri Davlasheridze & Qing Miao, 2019. "Does Governmental Assistance Affect Private Decisions to Insure? An Empirical Analysis of Flood Insurance Purchases," Land Economics, University of Wisconsin Press, vol. 95(1), pages 124-145.
    3. Mona Ahmadiani & Susana Ferreira & Craig E. Landry, 2019. "Flood Insurance and Risk Reduction: Market Penetration, Coverage, and Mitigation in Coastal North Carolina," Southern Economic Journal, John Wiley & Sons, vol. 85(4), pages 1058-1082, April.
    4. Carolyn Kousky, 2018. "Financing Flood Losses: A Discussion of the National Flood Insurance Program," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 21(1), pages 11-32, March.
    5. Craig E. Landry & Dylan Turner & Daniel Petrolia, 2021. "Flood Insurance Market Penetration and Expectations of Disaster Assistance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(2), pages 357-386, June.
    6. James R. Meldrum, 2016. "Floodplain Price Impacts by Property Type in Boulder County, Colorado: Condominiums Versus Standalone Properties," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(4), pages 725-750, August.
    7. Georgic, Will & Klaiber, H. Allen, 2022. "Stocks, flows, and flood insurance: A nationwide analysis of the capitalized impact of annual premium discounts on housing values," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    8. Douglas S. Noonan & Xian Liu, 2019. "Heading for the Hills? Effects of Community Flood Management on Local Adaptation to Flood Risks," Southern Economic Journal, John Wiley & Sons, vol. 86(2), pages 800-822, October.
    9. Atreya, Ajita & Ferreira, Susana & Michel-Kerjan, Erwann, 2015. "What drives households to buy flood insurance? New evidence from Georgia," Ecological Economics, Elsevier, vol. 117(C), pages 153-161.
    10. Osberghaus, Daniel & Reif, Christiane, 2021. "How do different compensation schemes and loss experience affect insurance decisions? Experimental evidence from two independent and heterogeneous samples," Ecological Economics, Elsevier, vol. 187(C).
    11. Daniel R. Petrolia & Craig E. Landry & Keith H. Coble, 2013. "Risk Preferences, Risk Perceptions, and Flood Insurance," Land Economics, University of Wisconsin Press, vol. 89(2), pages 227-245.
    12. Koen de Koning & Tatiana Filatova & Okmyung Bin, 2019. "Capitalization of Flood Insurance and Risk Perceptions in Housing Prices: An Empirical Agent‐Based Model Approach," Southern Economic Journal, John Wiley & Sons, vol. 85(4), pages 1159-1179, April.
    13. Justin Contat & Carrie Hopkins & Luis Mejia & Matthew Suandi, 2024. "When climate meets real estate: A survey of the literature," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 618-659, May.
    14. Martin Achtnicht & Daniel Osberghaus, 2019. "The Demand for Index‐Based Flood Insurance in a High‐Income Country," German Economic Review, Verein für Socialpolitik, vol. 20(2), pages 217-242, May.
    15. Douglas S. Noonan & Abdul‐Akeem A. Sadiq, 2018. "Flood Risk Management: Exploring the Impacts of the Community Rating System Program on Poverty and Income Inequality," Risk Analysis, John Wiley & Sons, vol. 38(3), pages 489-503, March.
    16. Andrew Royal & Margaret Walls, 2019. "Flood Risk Perceptions and Insurance Choice: Do Decisions in the Floodplain Reflect Overoptimism?," Risk Analysis, John Wiley & Sons, vol. 39(5), pages 1088-1104, May.
    17. Kendra Marcoux & Katherine R. H. Wagner, 2023. "Fifty Years of U.S. Natural Disaster Insurance Policy," CESifo Working Paper Series 10431, CESifo.
    18. Céline Grislain-Letrémy, 2018. "Natural Disasters: Exposure and Underinsurance," Annals of Economics and Statistics, GENES, issue 129, pages 53-83.
    19. Shinichi Kamiya & Noriyoshi Yanase, 2019. "Learning from extreme catastrophes," Journal of Risk and Uncertainty, Springer, vol. 59(1), pages 85-124, August.
    20. 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.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:riskan:v:37:y:2017:i:3:p:517-530. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1539-6924 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.