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

Area of Science:

• Environmental Science
• Economics
• Public Policy

Background:

• Flood insurance is vital for community resilience and risk management.
• Disaster occurrence influences insurance decisions, often attributed to behavioral biases.
• Federal disaster aid policy may also impact flood insurance uptake due to recipient requirements.

Purpose of the Study:

• To examine how hurricane occurrence, disaster declarations, and aid requirements affect flood insurance take-up rates.
• To quantify the impact of federal disaster aid policy on flood insurance purchases.
• To differentiate between voluntary and mandatory flood insurance purchases post-disaster.

Main Methods:

• Utilized fixed effects models on a US Atlantic and Gulf coast flood insurance policy database (2001-2010).
• Analyzed insurance purchase responses to hurricanes, tropical storms, disaster declarations, and aid mandates.
• Differentiated between voluntary and disaster-aid-required insurance policies.

Main Results:

• Hurricanes increased net flood insurance purchases by 7.2% in the year following the event, fading within three years.
• Presidential disaster declarations for floods raised take-up rates by 6.7%.
• Disaster aid grants increased take-up by 5%, accounting for most post-hurricane policy increases; mandatory insurance explained the majority of post-disaster purchases.

Conclusions:

• Federal disaster aid policy, specifically mandatory insurance for recipients, is a primary driver of flood insurance purchases after disasters.
• The impact of hurricanes on voluntary flood insurance purchases is smaller than previously thought when policy requirements are considered.
• Understanding the role of federal policy is crucial for effective flood risk management and insurance strategies.