Volume 13 Issue 2
Jul.  2022
Turn off MathJax
Article Contents
J. Connor Darlington, Niko Yiannakoulias. Experimental Evidence for Coverage Preferences in Flood Insurance[J]. International Journal of Disaster Risk Science, 2022, 13(2): 178-189. doi: 10.1007/s13753-022-00397-3
Citation: J. Connor Darlington, Niko Yiannakoulias. Experimental Evidence for Coverage Preferences in Flood Insurance[J]. International Journal of Disaster Risk Science, 2022, 13(2): 178-189. doi: 10.1007/s13753-022-00397-3

Experimental Evidence for Coverage Preferences in Flood Insurance

doi: 10.1007/s13753-022-00397-3
Funds:

This work was supported by the Natural Science and Engineering Research Council (NSERC) Canadian FloodNet (Grant Number:NETGP451456).

  • Available Online: 2022-07-06
  • We used a hypothetical choice experiment to estimate the effect of dwelling value and coverage limits on the probability of purchasing flood insurance while holding the probability of flooding and insurance price constant. The results indicate that demand for flood insurance is negatively associated with the amount of insurance coverage. For people assigned higher-valued dwellings, however, the opposite effect is observed. Since more coverage is generally preferred to less, all else being equal, differences in purchase probability dependent on dwelling value indicate an inconsistent approach to home protection. The higher probability of purchasing flood insurance from people in higher-valued dwellings may indicate an investment into the home as a financial asset, a strategy that is not observed to the same extent among people in lower-valued dwellings. This suggests that use of coverage limits may be differentially preferred based on dwelling value, such that low coverage insurance may have lower uptake for those in high-valued dwellings. As Canada evaluates a national flood insurance program, this research suggests that variable coverage maximums could be a way to increase accessibility and uptake of insurance. This research shows an inconsistent demand for flood insurance, dependent on dwelling value and independent of income.
  • loading
  • Atreya, A., S. Ferreira, and E. Michel-Kerjan. 2015. What drives households to buy flood insurance? New evidence from Georgia. Ecological Economics 117:153-161.
    Botzen, W.W., and J.C. van den Bergh. 2012. Risk attitudes to low-probability climate change risks:WTP for flood insurance. Journal of Economic Behavior and Organization 82(1):151-166.
    Brody, S.D., W.E. Highfield, M. Wilson, M.K. Lindell, and R. Blessing. 2017. Understanding the motivations of coastal residents to voluntarily purchase federal flood insurance. Journal of Risk Research 20(6):760-775.
    Browne, M.J., and R.E. Hoyt. 2000. The demand for flood insurance:Empirical evidence. Journal of Risk and Uncertainty 20(3):291-306.
    Browne, M.J., C. Knoller, and A. Richter. 2015. Behavioral bias and the demand for bicycle and flood insurance. Journal of Risk and Uncertainty 50(2):141-160.
    Burn, D.H., and P.H. Whitfield. 2016. Changes in floods and flood regimes in Canada. Canadian Water Resources Journal 41(1-2):139-150.
    Charpentier, A. 2008. Insurability of climate risks. The Geneva Papers on Risk and Insurance-Issues and Practice 33(1):91-109.
    Clark, M. 1998. Flood insurance as a management strategy for UK coastal resilience. The Geographical Journal 164(3):333-343.
    Ehrlich, I., and G.S. Becker. 1972. Market insurance, self-insurance, and self- protection. Journal of Political Economy 80(4):623-648.
    Government of Canada. 2019. Minister of public safety and emergency preparedness mandate letter. https://pm.gc.ca/en/mandate-letters/2019/12/13/archived-minister-public-safety-and-emergency-preparedness-mandate. Accessed 30 Jan 2022.
    Government of Canada. 2020. Economic and fiscal snapshot 2020. https://www.canada.ca/en/department-finance/services/publications/economic-fiscal-snapshot.html. Accessed 15 Nov 2021.
    Government of Canada. 2022. Employment equity act. https://laws-lois.justice.gc.ca/eng/acts/e-5.401/FullText.html. Accessed 30 Jan 2022.
    Hung, H.C. 2009. The attitude towards flood insurance purchase when respondents' preferences are uncertain:A fuzzy approach. Journal of Risk Research 12(2):239-258.
    IBC (Insurance Bureau of Canada). 2015. The financial management of flood risk:An international review-Lessons learned from flood management programs in G8 countries. Edmonton, Canada:Insurance Bureau of Canada.
    IBC (Insurance Bureau of Canada). 2019. Options for managing flood costs for Canada's highest risk residential properties. A report of the National Working Group on Financial Risk of Flooding. Edmonton, Canada:Insurance Bureau of Canada. http://assets.ibc.ca/Documents/Studies/IBC-Flood-Options-Paper-EN.pdf. Accessed 1 Aug 2019.
    Jongejan, R., and P. Barrieu. 2008. Insuring large-scale floods in the Netherlands. The Geneva Papers on Risk and Insurance -Issues and Practice 33(2):250-268.
    Kahneman, D., and A. Tversky. 1979. Prospect theory:An analysis of decision under risk. Econometrica 47(2):263-291.
    Kousky, C. 2011. Understanding the demand for flood insurance. Natural Hazards Review 12(2):96-110.
    Kriesel, W., and C. Landry. 2004. Participation in the National Flood Insurance Program:An empirical analysis for coastal properties. Journal of Risk and Insurance 71(3):405-420.
    Landry, C.E., and M.R. Jahan-Parvar. 2011. Flood insurance coverage in the coastal zone. Journal of Risk and Insurance 78(2):361-388.
    Lo, A. 2013a. The role of social norms in climate adaptation:Mediating risk perception and flood insurance purchase. Global Environmental Change 23(5):1249-1257.
    Lo, A. 2013b. Household preference and financial commitment to flood insurance in South-East Queensland. The Australian Economic Review 46(2):160-175.
    Nyman, J.A. 2001. The demand for insurance:Expected utility theory from a gain perspective Discussion paper No. 313. Center for Economic Research, Department of Economics, University of Minnesota, Minneapolis, MN.
    Oulahen, G. 2015. Flood insurance in Canada:Implications for flood management and residential vulnerability to flood hazards. Environmental Management 55(3):603-615.
    Petrolia, D.R., C.E. Landry, and K.H. Coble. 2013. Risk preferences, risk perceptions, and flood insurance. Land Economics 89(2):227-245.
    Public Safety Canada. 2019. Disaster Financial Assistance Arrangements (DFAA). Government of Canada. https://www.publicsafety.gc.ca/cnt/mrgnc-mngmnt/rcvr-dsstrs/dsstr-fnncl-ssstnc-rrngmnts/index-en.aspx. Accessed 1 Jun 2019.
    Rabin, M. 2013. Risk aversion and expected-utility theory:A calibration theorem. In Handbook of the fundamentals of financial decision making:Part I, ed. L.C. MacLean, and W.T. Ziemba, 241-252. Hackensack, NJ:World Scientific.
    Raschky, P.A., R. Schwarze, M. Schwindt, and F. Zahn. 2013. Uncertainty of governmental relief and the crowding out of flood insurance. Environmental and Resource Economics 54(2):179-200.
    Ren, J., and H.H. Wang. 2016. Rural homeowners' willingness to buy flood insurance. Emerging Markets Finance and Trade 52(5):1156-1166.
    Sandink, D. 2016. Urban flooding and ground-related homes in Canada:An overview. Journal of Flood Risk Management 9(3):208-223.
    Sandink, D., P. Kovacs, G. Oulahen, and G. McGillivray. 2010. Making flood insurable for Canadian homeowners:A discussion paper. Toronto:Institute of Catastrophic Loss Reduction and Swiss Reinsurance Company Ltd.
    Shao, W., S. Xian, N. Lin, H. Kunreuther, N. Jackson, and K. Goidel. 2017. Understanding the effects of past flood events and perceived and estimated flood risk on individuals' voluntary flood insurance purchase behavior. Water Research 108:391-400.
    Slovic, P., B. Fischhoff, S. Lichtenstein, B. Corrigan, and B. Combs. 1977. Preference for insuring against probable small losses:insurance implications. Journal of Risk and Insurance 44(2):237-258.
    Smith, V.L. 1968. Optimal insurance coverage. Journal of Political Economy 76(1):68-77.
    Sydnor, J. 2010. (Over) insuring modest risks. American Economic Journal:Applied Economics 2(4):177-199.
    Thistlethwaite, J. 2017. The emergence of flood insurance in Canada:Navigating institutional uncertainty. Risk Analysis 37(4):744-755.
    Tversky, A., and D. Kahneman. 1981. The framing of decisions and the psychology of choice. Science 211(4481):453-458.
    Väisänen, S., V. Lehtoranta, A. Parjanne, A.M. Rytkönen, and J. Aaltonen. 2016. Willingness of residents to invest in flood mitigation measures and to purchase flood insurance. In Proceedings of the 3rd European Conference on Flood Risk Management, 17-21 October 2016, Lyon, France. Part 3, 1955-1962. Les Ulis, France:EDP Sciences.
  • 加载中

Catalog

    通讯作者: 陈斌, bchen63@163.com
    • 1. 

      沈阳化工大学材料科学与工程学院 沈阳 110142

    1. 本站搜索
    2. 百度学术搜索
    3. 万方数据库搜索
    4. CNKI搜索

    Article Metrics

    Article views (596) PDF downloads(0) Cited by()
    Proportional views
    Related

    /

    DownLoad:  Full-Size Img  PowerPoint
    Return
    Return