Abstract
In the United States (U.S.), there is no one base policy for property insurance that can cover all disaster perils such as floods and windstorms. Hurricane-based insurance is intrinsically complex because the disaster peril may be excluded from a regular insurance policy and thus homeowners need to purchase a separate policy for that risk. Besides, the coverage for disaster perils often comes with separate deductibles and coverage limits. As a result, homeowners need to acquire a significant amount of information and knowledge to understand the insurance policies and make informed decisions about their coverage choices. This study utilizes decision trees to provide a comprehensive overview of flood and wind insurance purchase outcomes in the state of Florida. We also examine the behavioral, personal, and socio-demographic factors that influence the decision to obtain natural disaster insurance coverage for the various identified types of insurance purchases. Our empirical analyses are based on homeowner survey data collected from coastal residents in Florida. We find that different types of flood and wind insurance purchases are related to unique factors, which highlights the importance of distinguishing insurance purchase outcomes. We also provide policy implications that focus on specific targets to improve insurance uptake.
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Notes
- 1.
- 2.
Cost numbers were extracted from https://www.ncdc.noaa.gov/billions/summary-stats/FL/1980-2021 and https://www.ncdc.noaa.gov/billions/summary-stats/GCS/1980-2021. Both costs were CPI-adjusted and did not include Hurricane Nicholas in September 2021.
- 3.
There may be comprehensive policies that include added-on endorsements to cover disaster perils.
- 4.
Federal banking regulators have allowed for either a NFIP policy or a private flood insurance. A rule on acceptance of private flood insurance was finalized in 2019. However, Federal Housing Administration (FHA) regulations currently do not allow FHA-insured properties to purchase private flood insurance to fulfill the mandatory requirement.
- 5.
High-risk flood areas begin with the letters A or V on the FEMA flood maps. Moderate- to low-risk flood areas are designated with the letters B, C, and X on the FEMA flood maps. More than 40% of all NFIP flood claims came from outside of high-risk flood areas between 2015 and 2019 (FEMA 2020).
- 6.
The numbers for Florida are obtained from the Community Status Book, retrieved October 5, 2020 from https://www.fema.gov/national-floodinsurance-program-community-status-book.
- 7.
Alternatively, homeowners may have a flood endorsement onto a dwelling fire policy.
- 8.
Private insurance companies can underwrite the NFIP standard insurance policy through the Write Your Own (WYO) Program. But the financial liabilities of these NFIP policies are fully on federal government.
- 9.
More policy information regarding PRPs is available at https://www.fema.gov/pdf/nfip/manual201105/content/09_prp.pdf.
- 10.
More detailed information is available at https://www.agordon.com/blog/bid/163479/wind-deductible-vs-hurricane-vs-named-storm-deductibles and the CIPR website https://content.naic.org/cipr_topics/topic_hurricane_deductibles.htm.
- 11.
Citizens was established by the Florida Legislature in 2002 when the state combined two separate high-risk insurance pools – the Florida Windstorm Underwriting Association and the Florida Residential Property & Casualty Joint Underwriting Association. The company website is https://www.citizensfla.com/insurance-101.
- 12.
Based on s. 627.351(6)(a)3.d., effective January 1, 2017, a structure that has a dwelling replacement cost of $700,000 or more, or a single condominium unit that has a combined dwelling and contents replacement cost of $700,000 or more, is not eligible for coverage by the corporation. Such dwellings insured by the corporation on December 31, 2016 may continue to be covered by the corporation until the end of the policy term. Rules and processes were revised in December 2019; see details at Citizens website.
- 13.
There are around 10 private insurers that sell wind-only policies in Florida, according to our communications with the Florida Office of Insurance Regulation (OIR) staff.
- 14.
When homeowners incur wind losses under the second hurricane, the deductible of the second claim will be either the remainder of the unused hurricane deductible or the AOP deductible, whichever is greater. See more details at the Florida’s Chief Financial Officer’s website.
- 15.
The CHOICES system is for four types of insurance including homeowners at https://www.floir.com/choices.aspx.
- 16.
To learn more about the wind mitigation discount, see Form OIR-B1-1655 from Florida OIR available at https://www.floir.com/siteDocuments/OIR-B1-1655.pdf.
- 17.
National Association of Insurance Commissioners (NAIC), December 2019, “Considerations for State Insurance Regulators in Building the Private Flood Insurance Market.”
- 18.
This is the marginal effect of x variable on the y variable when holding other covariates at their mean values.
- 19.
See more at the Stata website https://www.stata.com/support/faqs/statistics/marginal-effect-greater-than-1/.
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Zhang, J., Czajkowski, J., Botzen, W.J.W., Robinson, P.J., Tesselaar, M. (2022). Assessing the Drivers of Intrinsically Complex Hurricane Insurance Purchases: Lessons Learned from Survey Data in Florida. In: Collins, J.M., Done, J.M. (eds) Hurricane Risk in a Changing Climate. Hurricane Risk, vol 2. Springer, Cham. https://doi.org/10.1007/978-3-031-08568-0_12
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