Homeowners' Willingness To Hedge Flood Risks as Prices Increase *
69 Pages Posted: 30 Nov 2023
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: Suggested Citation