Flood insurance prices are changingAnd thats a good thing

Dec. 8, 2021

Flood insurance is an important means for households to protect finances against otherwise irrecoverable loss caused by climate risk. To help policymakers improve community resilience against such risk, Benjamin Collier and his coauthors investigated how households make decisions regarding their flood insurance coverage.

Contrary to what economic models may predict, research found that families typically opted to pay for full household coverage, regardless of the prices of premiums. This could be due to families overweighting the risks of disaster and insurance agents’ practices to push for full coverage.

As the premiums for average households are already priced higher to subsidize high-risk properties, Collier’s research emphasizes the need for forthcoming pricing reforms to move towards individualized pricing models.