Flood Insurance Reforms, Housing Market Dynamics, and Adaptation to Climate Risks
In this journal article, RFF Fellow Penny Liao and her coauthors examine how two reforms to the National Flood Insurance Program have affected flood insurance and property markets.
Abstract
This paper examines the impact of two nationwide reforms to the National Flood Insurance Program on both flood insurance and property markets. The 2012 and 2014 reforms aimed to phase out subsidies on flood insurance premiums. Using a difference-in-differences framework comparing treated and similar but untreated properties, we find that the reforms led to a 14.3% relative increase in the price of flood insurance, an 8.2% decrease in insurance demand, a 4.2% decrease in property prices and a 2.3% decrease in property transaction volumes. As flood risk continues to accelerate across the United States, properly pricing insurance premiums can effectively discourage households from living in risky areas, but may involve potential trade-offs such as the unintended outcome of a large drop-off in insurance coverage.
Authors
Hannah Hennighausen
University of Alaska
Christoph Nolte
Boston University
Adam Pollack
Boston University
