UGA researchers: Many in flood-prone areas rely on disaster assistance rather than insurance |
ATHENS – Fifteen million homes in the United States are at risk of flooding, according to the nonprofit First Street. And coastal homes aren’t the only properties at risk.
But not everyone in flood-prone areas has flood insurance, and a new study published in the journal Environmental and Resource Economics by researchers at the University of Georgia examined the reasons. Research has found that several factors influence the likelihood of households to purchase flood insurance, including expectations for disaster assistance.
Known as charitable risk, the question of whether expectations for disaster assistance could reduce the demand for flood insurance was at the center of the study of Craig Landry, professor in the Department of agricultural and applied economics, and the recent doctorate Dylan Turner.
Using household-level survey data from 548 households in 72 counties in Texas, Louisiana, Mississippi, Alabama and Florida, Landry and Turner examined the possibility of households forgoing the flood insurance based on the local history of disaster relief delivery and the political and social environment on the surface.
“As long as the community participates in the national flood insurance program, homeowners must agree to take out insurance if they are in the special flood zone, which people generally think of as the flood zone,” Landry said. . “If you have a mortgage that is provided by someone who is federally regulated, you are supposed to have flood insurance, but most studies have shown that compliance is not very high.
The study found that coastal households with positive expectations about eligibility for disaster assistance are 25-42% less likely to have flood insurance.
“People are sort of bypassing it,” he said. “It’s not very well enforced, and you should only buy it if you have a mortgage, so if you don’t have one, you’re totally free to forgo flood insurance.”
Based on data from the 2010 survey, the UGA study focused directly on the issue of charitable risk, something that has not been examined in previous data studies, Landry said. Previous studies had analyzed the relationship between expectations for disaster assistance and the purchase of flood insurance, but had failed to take the necessary steps to establish a potential causal link.
“The lack of compliance with the compulsory purchase provisions has been a sort of conundrum as to what is driving this,” he said. “One of the beliefs is what we call charitable risk, which is a special case of moral hazard.”
Using data on past disaster assistance payments – either through individual aid or public aid from the Federal Emergency Management Agency – to specific communities, the researchers tracked down where payments took place and explained this influence on owners’ expectations for help. Another complication of the study was the impact of political representation on where disaster aid is distributed.
“If your senator or congressman is on a certain committee, your community is more likely to receive disaster assistance and it may be more generous, so there is a political aspect,” said Landry. “It has also been shown that, if you are a swing county and you are in a presidential election year, there is much more generous aid because politicians are trying to make voters happy.”
Because the study was based on data from respondents’ perceptions and not just policy or insurance data, the researchers were able to gauge how well homeowners thought they would receive assistance in the event of a loss. disaster if their property was flooded.
“We have found that if you rank people as being very optimistic about the help provided by relief systems versus those who were not, those who are very optimistic about the help received are between 28% and 43%, ”Landry said. “These are the people who are less likely to have a flood insurance policy. It is a big magnitude. This expectation, or reluctance to take out insurance, is influenced by the attitude “Maybe it will.” It’s almost as if people tend to be more optimistic about receiving help if something does happen, so much so that it’s a big factor contributing to the lack of market penetration of flood insurance.
In 2018, the NFIP had approximately 5.2 million policies in force, generating $ 3.3 billion in earned premiums. Based on the full study sample, 59% of coastal residents expressed optimism about eligibility for government disaster assistance for property damage. Considering factors such as the likelihood of having a policy and the warrants that those who have previously received federal disaster assistance have flood insurance, the researchers estimate that about 13% of residents are uninsured in due to a charitable risk. If these localized results are applied more broadly, it could be responsible for 817,000 uninsured households in the United States, which translates to a loss of $ 526 million in lost annual income to the NFIP, according to the study.
In the document, the researchers make several recommendations to government decision-makers to address the problem.
Although the study indicates that the enforcement of mandatory purchasing requirements has improved in recent years, it postulates that a broader institution of the NFIP community assessment system could significantly improve the dissemination of information on the provisions. related to flood risks and increase flood insurance compliance through discounts for communities and individual homeowners. .
Making flood insurance more affordable for low-income landowners through vouchers and adding means-testing provisions for assistance could increase market penetration for NFIP and reduce overconfidence in disaster relief, the study suggests. This approach could encourage homeowners with higher incomes not to depend on assistance, potentially increasing the likelihood of purchasing catastrophe insurance.
“One thing that should be done is to make sure people know the size of the disaster assistance payments, because most people think it’s a lot more generous than it is.” , Landry said. “I think the average payment is in the order of several thousand dollars and these payments are primarily designed to provide temporary housing. This is only basic humanitarian aid, it is not designed to fix your house.
Landry also suggested that it might be wise for politicians to have less leeway in determining disaster aid, perhaps instituting rules for qualifying for disaster aid, for example by ensuring that those who receive disaster assistance are not able to afford flood insurance before a disaster occurs.
“There have been circumstances where it has been shown that rules rather than discretion can lead to better results,” he said. “There are ways to limit the political process of disaster relief and make it more rules-based. “
Landry said the First Street Foundation is partnering with housing websites to educate potential homeowners about properties’ flood history, as well as expected flood risk, influenced by various climate change scenarios and l impact of human development.
“This is exactly what people need to know,” he said. “Flood maps seemingly become obsolete very quickly, not only because of natural forces, but also because of man-made infrastructure. The more impermeable your surface, the more runoff you have in rivers… and the consequences of flooding are worse due to land use change. The maps and mapping procedures that have been used historically do not take all of this into account.
In addition to providing information to experts and policy makers, sensitizing landowners to the uncertainty of disaster relief and the value of flood insurance is an important objective of the study and any flood risk study that may be carried out in the future.
“Risk communication is part of the problem,” Landry said. “I think it’s probably wise to respond to the optimism about bailouts during disasters. Just communicating this to people and spreading information about current and potential flood risks, especially during the life of a 30-year mortgage, will make people more aware. “
For more information on research and scholarships at the Department of Agricultural and Applied Economics, visit the website at agecon.uga.edu.