Climate Risk Perceptions and Demand for Flood Insurance

55 Pages Posted: 8 Mar 2020

See all articles by Dimuthu Ratnadiwakara

Dimuthu Ratnadiwakara

Louisiana State University

Buvaneshwaran Venugopal

University of Central Florida - College of Business Administration

Date Written: September 30, 2019

Abstract

Using detailed micro-level data, we show that individuals' beliefs about climate change influence their choice and level of flood insurance coverage. Our empirical strategy exploits the heterogeneous impact of widening partisan polarization on climate change beliefs after the 2016 general election. We find that, in areas where flood insurance is not mandatory, a one-standard-deviation drop in the fraction of adults who believe global warming is happening leads to a 26% drop in the demand for flood insurance. In areas where flood insurance is mandatory, a similar drop in beliefs is associated with a lower propensity to carry voluntary content coverage and a higher likelihood of choosing the maximum deductible amount. As a secondary test, we exploit the flood insurance premium increases due to the Biggert-Waters Flood Insurance Reform Act of 2012. We show that homeowners who do not believe global warming is happening were more likely to terminate mandatory flood insurance coverage by prepaying mortgages.

Keywords: Global Warming, Adaptation, Flood Insurance, Perceptions

JEL Classification: D14, D81, D83, G11, G41

Suggested Citation

Ratnadiwakara, Dimuthu and Venugopal, Buvaneshwaran, Climate Risk Perceptions and Demand for Flood Insurance (September 30, 2019). Available at SSRN: https://ssrn.com/abstract=3531380 or http://dx.doi.org/10.2139/ssrn.3531380

Dimuthu Ratnadiwakara (Contact Author)

Louisiana State University ( email )

501 South Quad Drive
Baton Rouge, LA 70808
United States
713-743-4937 (Phone)

HOME PAGE: http://https://sites.google.com/view/dimuthu-ratnadiwakara

Buvaneshwaran Venugopal

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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