Homeowners' Willingness To Hedge Flood Risks as Prices Increase *

69 Pages Posted: 30 Nov 2023

See all articles by Benjamin Collier

Benjamin Collier

Temple University - Risk Management & Insurance & Actuarial Science

Tobias Huber

University of New South Wales (UNSW)

Johannes Gerd Jaspersen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Andreas Richter

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Date Written: November 16, 2023

Abstract

As the costs of climate events grow, will property owners continue insuring their homes? We examine a bellwether group of high-risk, heavily-subsidized flood insurance policyholders. A reform increased their prices to more accurately reflect expected costs. These policyholders were informed that despite the increase, their insurance remained below the actuarial price. Difference-indifferences estimations show that 27% of homeowners stopped insuring due to the reform. These non-renewals reflect a mix of sophisticated and unsophisticated responses. While higher premiums steered some households to adapt by relocating, others simply dropped their subsidized insurance. Our findings highlight challenges to climate adaptation.

Keywords: Climate Risk, Household Finance, Insurance Demand, Climate Adaptation, Real Estate Economics JEL Classifications: D12

JEL Classification: D12, D81, Q54, R20

Suggested Citation

Collier, Benjamin and Huber, Tobias and Jaspersen, Johannes Gerd and Richter, Andreas, Homeowners' Willingness To Hedge Flood Risks as Prices Increase * (November 16, 2023). Available at SSRN: https://ssrn.com/abstract=4635177 or http://dx.doi.org/10.2139/ssrn.4635177

Benjamin Collier

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

Tobias Huber

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Johannes Gerd Jaspersen (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstr. 4
Munich, DE 80539
Germany

Andreas Richter

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstraße 4
Munich, 80539
Germany

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