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Insurance Market Response to Flood Hazards: Empirical Evidence from the Housing Market

33 Pages Posted: 23 Mar 2016 Last revised: 18 Jul 2016

Carolin Pommeranz

RWTH Aachen University

Bertram I. Steininger

RWTH Aachen University; Centre for European Economic Research (ZEW) - International Finance and Financial Management

Date Written: July 17, 2016

Abstract

This study analyzes the impact of actuarial floodplain location on property prices and evaluates the risk perception of residential homeowners in Dresden, Germany. We combine hand-collected, insurance-based data for flood zone identification and property offering records in order to run a hedonic Spatial Durbin Model. Even for an entirely voluntary and private insurance market, we find that a property location at risk lowers the asking prices for houses and condominiums. Price differentials for houses exceed the present value of insurance premiums, while for condominiums, results vary around the present value according to specific flood zones.

Keywords: flood insurance, property prices, hedonic pricing, spatial regression

JEL Classification: G22, Q51, Q54

Suggested Citation

Pommeranz, Carolin and Steininger, Bertram I., Insurance Market Response to Flood Hazards: Empirical Evidence from the Housing Market (July 17, 2016). Available at SSRN: https://ssrn.com/abstract=2753305 or http://dx.doi.org/10.2139/ssrn.2753305

Carolin Pommeranz (Contact Author)

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Bertram I. Steininger

RWTH Aachen University ( email )

Templergraben 64
Aachen, 52056
Germany

Centre for European Economic Research (ZEW) - International Finance and Financial Management ( email )

Postfach 103443
Mannheim, D-68034
Germany

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