Date of this Version
The Geneva Papers on Risk and Insurance - Issues and Practice
Since 1968, homeowners’ flood insurance in the United States has been mainly provided through the federally-run National Flood Insurance Program (NFIP). The Flood Insurance Reform Act of 2012 raises the possibility of moving coverage to the private sector, assuming the market can price this risk effectively and that premiums reflect risk. This paper provides the first large-scale quantification of risk-based premiums for over 300,000 residences prone to either storm surge or inland flooding using commercially developed probabilistic catastrophe models, and compares these premiums with those currently charged by the NFIP. Our findings reveal significant differences between the two. In some areas, the NFIP charges prices that are more than 15 times the pure premium, while other areas are charged up to three times less than the pure premium. The paper discusses the market and policy implications of these findings.
The final publication is available at Springer via http://dx.doi.org/10.1057/gpp.2014.27
insurance pricing, catastrophe model, flood insurance, NFIP
Michel-Kerjan, E., Czajkowski, J., & Kunreuther, H. (2015). Could Flood Insurance be Privatised in the United States? A Primer. The Geneva Papers on Risk and Insurance - Issues and Practice, 40 (2), 179-208. http://dx.doi.org/10.1057%2Fgpp.2014.27
Date Posted: 27 November 2017
This document has been peer reviewed.