Journal of Risk and Uncertainty

, Volume 20, Issue 3, pp 291–306 | Cite as

The Demand for Flood Insurance: Empirical Evidence

  • Mark J. Browne
  • Robert E. Hoyt


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.

flood insurance fixed-effects models insurance demand 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Anderson, Dan R. (1974). “The National Flood Insurance Program Problems and Potential, ” Journal of Risk and Insurance 41, 579–600.Google Scholar
  2. Barnett, Barry J., and Jerry R. Skees. (1995). “Region and Crop Specific Models of the Demand for Federal Crop Insurance, ” Journal of Insurance Issues 19, 47–65.Google Scholar
  3. Borch, Karl L. (1960). “The Safety Loading of Reinsurance Premiums, ” Skandinavian Aktuarietidskrift 162–184.Google Scholar
  4. Browne, Mark J., and Kihong Kim. (1993). “An International Analysis of Life Insurance Demand, ” The Journal of Risk and Insurance 60, 616–629.Google Scholar
  5. Core, John E. (1997). “On the Corporate Demand for Directors' and Officers' Insurance, ” The Journal of Risk and Insurance 64, 63–87.Google Scholar
  6. Gould, John P. (1969). “The Expected Utility Hypothesis and the Selection of Optimal Deductibles for a Given Insurance Policy, ” The Journal of Business 42, 143–151.Google Scholar
  7. Graff, Antonia. (1999). “Die Versicherung von Elementarrisiken im Rahmen der verbundenen Hausratund der verbundenen Wohngebaudeversicherung, ” Working Paper, University of Regensburg, Germany.Google Scholar
  8. Hoyt, Robert E. (1990). “The Effect of Insurance Fraud on the Economic System, ” Journal of Insurance Regulation 8, 304–315.Google Scholar
  9. Kunreuther, Howard, et al. (1978). Disaster Insurance Protection: Public Policy Lessons. New York: John Wiley.Google Scholar
  10. Kunreuther, Howard. (1984). “Causes of Underinsurance against Natural Disasters, ” The Geneva Papers on Risk and Insurance 31, 206–20.Google Scholar
  11. Kunreuther, Howard. (1996). “Mitigating Disaster Losses Through Insurance, ” Journal of Risk and Uncertainty 12, 171–187.Google Scholar
  12. Levmore, Saul. (1996). “Coalitions and Quakes: Disaster Relief and its Prevention, ” Roundtable: University of Chicago Law School 3, 1–34.Google Scholar
  13. Lewis, Tracy, and David Nickerson. (1989). “Self-Insurance against Natural Disasters, ” Journal of Environmental Economics and Management 16, 209–223.Google Scholar
  14. Mayers, David, and Clifford W. Smith, Jr. (1982). “On the Corporate Demand for Insurance, ” Journal of Business 55, 190–205.Google Scholar
  15. Miyazaki, Hajime. (1977). “The Rat Race and Internal Labor Markets, ” The Bell Journal of Economics 8, 394–418.Google Scholar
  16. Mossin, Jan. (1968). “Aspects of Rational Insurance Purchasing, ” Journal of Political Economy 76, 553–568.Google Scholar
  17. Palm, Risa, et al. (1990). Earthquake Insurance in California: Environmental Policy and Individual Decision Making. Boulder, CO: Westview Press.Google Scholar
  18. Pasterick, Edward T. (1998). “The National Flood Insurance Program. ” In Howard Kunreuther and Richard J. Roth, Sr. eds., Paying the Price: The Status and Role of Insurance Against Natural Disasters in the United States. Washington, DC: Joseph Henry Press.Google Scholar
  19. Pynn, Ronald, and Greta M. Ljung. (1999). “Flood Insurance: A Survey of Grand Forks, North Dakota, Homeowners, ” Applied Behavioral Science Review Forthcoming.Google Scholar
  20. Raviv, Auther. (1979). “The Design of an Optimal Insurance Policy, ” American Economic Review 69, 84–96.Google Scholar
  21. Rejda, George E. (1998). Principles of Risk Management and Insurance 6th ed.. Reading, MA: Addison-Wesley.Google Scholar
  22. Rothschild, Michael, and Joseph Stiglitz. (1976). “Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information, ” Quarterly Journal of Economics 90, 629–649.Google Scholar
  23. SIGMA. (1998). “Natural ? Catastrophes and Major Losses in 1997: Exceptionally Few High Losses, ” Swiss Re, No. 3r/1998.Google Scholar
  24. Smith, Vernon L. (1968). “Optimal Insurance Coverage, ” Journal of Political Economy 76, 68–77.Google Scholar
  25. U.S. General Accounting Office. (1983)a. “The Effect of Premium Increases on Achieving the National Flood Insurance Program's Objectives, ” RCED83/107.Google Scholar
  26. U.S. General Accounting Office. (1990). “Flood Insurance: Information on Mandatory Purchase Requirement, ” RCED-90-141FS, 8r90.Google Scholar
  27. U.S. General Accounting Office. (1983)b. “National Flood Insurance Program: Major Changes Needed If It Is to Operate Without A Federal Subsidy, ” RCED-83-53, 1r83.Google Scholar
  28. Vaughan, Emmett J. (1997). Risk Management. New York: John Wiley and Sons, Inc.Google Scholar
  29. Viscusi, W. Kip. (1991). “Economic Theories of Decision Making Under Uncertainty: Implications for Policy Analysis. ” In David L. Weimer ed., Policy Analysis and Economics: Developments, Tensions, and Prospects. Boston: Kluwer Academic Publishers.Google Scholar
  30. Wilson, Charles. (1977). “A Model of Insurance Markets with Incomplete Information” Journal of Economic Theory 97, 167–207.Google Scholar

Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Mark J. Browne
    • 1
  • Robert E. Hoyt
    • 2
  1. 1.School of BusinessUniversity of Wisconsin-MadisonMadisonUSA
  2. 2.Faculty of Risk Management and Insurance, Terry College of BusinessThe University of GeorgiaAthensUSA

Personalised recommendations