Article
Private Versus Public Flood Insurance: Evidence on the Size of the National Flood Insurance Subsidy from a Natural Experiment in a Coastal Housing Market
Manuscript
(2022)
Abstract
The existence of a U.S. subsidy under the National Flood Insurance Program (NFIP) is well-known but its extent has rarely been documented. Whether the federal government should be providing a subsidy is debatable on efficiency, financial, and equity grounds and continually comes under scrutiny. Indeed, recent legislation calls for reducing the role of the federal government in flood insurance at least incrementally. Using a unique “natural experiment” created by the 1982 Coastal Barrier Resource Act (CBRA), we measure the extent of the federal flood insurance subsidy in two coastal housing markets (Delaware and North Carolina). The CBRA has resulted in homeowners living in neighboring housing markets in which some have access to federally backed NFIP flood insurance and others do no. Those without access must purchase private insurance if they desire coverage. We compare insurance premiums and uptake in the two markets and find that premiums for private coverage (after controlling for other factors) are significantly higher than public rates – by a factor of 2 to 3. We also find a much lower uptake of insurance in the areas without federally backed insurance. Our results are based on a mail survey of residents in two U.S. coastal communities with a 50% response rate: North Bethany Beach, Delaware and North Topsail Beach, North Carolina. We also present results related to perceptions of flood hazards, of being under- or over-insured, and measures taken to mitigate flood damage.
Keywords
- Flood Insurance,
- Subsidy,
- NFIP,
- Economics
Disciplines
Publication Date
2022
Citation Information
George R Parsons. "Private Versus Public Flood Insurance: Evidence on the Size of the National Flood Insurance Subsidy from a Natural Experiment in a Coastal Housing Market" Manuscript (2022) Available at: http://works.bepress.com/george_parsons/66/