The Demand for Flood Insurance: Empirical Evidence

Flood damages that occur worldwide remain largely uninsured losses despite the efforts of governmental programs that in many cases make insurance available at below fair market cost. The current study focuses on the financial experience of the United States' National Flood Insurance Program (NFIP) from 1983 through 1993 to examine the hypothetical determinants of the flood insurance purchasing decision. The empirical analysis supports the hypotheses that income and price are influential factors in one's decision to purchase flood insurance. Flood insurance purchases at the state level are found to be highly correlated with the level of flood losses in the state during the prior year.