The Future of Pricing and Selling Flood Insurance in the United States
Open Access
- Author:
- Cikowski, Shannon Patricia
- Area of Honors:
- Statistics
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Zhongyi Yuan, Thesis Supervisor
David Russell Hunter, Thesis Honors Advisor - Keywords:
- actuarial science
flood risk
flood insurance
catastrophe
insurance - Abstract:
- Flood risk is a surprisingly common hazard for which countless property owners fail to purchase adequate coverage. Though flooding has impacted properties in all fifty U.S. states, it is traditionally difficult for the private insurance sector to cover due to its catastrophic potential. Thus, the U.S. government has implemented the National Flood Insurance Program (NFIP) to provide homeowners necessary and often mandated coverage. Despite improvements in flood risk mapping in recent years, the NFIP has struggled to remain both affordable and financially sound. Therefore, alternative approaches to pricing and the involvement of the private sphere must be considered. After examining the program’s current method of pricing flood insurance, this study utilizes datasets released by the Federal Emergency Management Agency (FEMA) to model flood risk based on individual property features. Many academics have revealed the flaws of aggregating flood risk across zones, so the significance of building-specific features such as number of floors, basement type, and property value is explored. The model’s results, along with conclusions from the literature review, are used to analyze the success of the NFIP in achieving its goals and to consider what the program may look like in the future. As FEMA increases its data sharing and moves toward rates more reflective of true risk, private flood insurance is predicted to play a larger and more creative role moving forward.