Public Flood Risk Mitigation and the Homeowner’s Insurance Demand Response

Abstract

This paper investigates the influence of public risk mitigating activities on individuals' decisions to privately mitigate their disaster risks. We exploit heterogeneity in measures under the Community Rating System in the U.S. to empirically demonstrate that government investment in flood risk communication activities crowd-in private flood insurance demand while activities that lower the flood hazard residents face crowd-out private flood insurance demand. We also give evidence that flood insurance abides by the law of demand: as communities receive price discounts on their insurance policies, demand increases. Our results imply that governments can amplify the price effect by investing in additional risk communication activities, or dilute it by investing in hazard mitigation. This paper contributes to the discussion of the efficacy of disaster risk mitigation strategies and who ultimately bears the costs of natural disasters.

Does federal flood hazard mitigation assistance affect community rating system participation?

“…Past studies suggest that an NFIP community's decision to join the CRS program is driven largely by flood risk and socioeconomic factors (Asche, 2013; Landry & Li, 2012; Posey, 2009; Sadiq & Noonan, 2015a; Sadiq et al., 2020). There are a few papers that also find that increased participation in CRS encourages NFIP participation (Borsky & Henninghausen, 2022; Frimpong et al., 2020; Petrolia et al., 2013; Zahran et al., 2009) and reduces flood losses and damage claims payment (Frimpong et al., 2020; Gourevitch & Pinter, 2022; Highfield & Brody, 2013, 2017; Highfield et al., 2014; Michel‐Kerjan & Kousky, 2010).…”