Private versus Public Flood Insurance: Differences in Premiums and Uptake Observed in Two Coastal Housing Markets Using Survey Data

Abstract

Using a natural experiment created by the 1982 Coastal Barrier Resources Act (CBRA), we measure the extent to which insurance premiums vary between private and publicly backed flood insurance policies. The CBRA resulted in homeowners living in neighboring housing markets in which some have access to the federally backed National Flood Insurance Program (NFIP) and others do not. Flood risks and other features of the neighborhoods are otherwise indistinguishable. Those without access to publicly backed insurance must purchase private insurance if they desire coverage. We compare insurance premiums and uptake in the two markets and find that premiums for private coverage are significantly higher than public rates (after controlling for other factors in a reduced-form regression), implying a subsidy by NFIP. We also find a much lower uptake of insurance in the areas without federally backed insurance. Our results are based on a mail survey of residents in two US coastal communities with a 50% response rate: North Bethany Beach, Delaware, and North Topsail Beach, North Carolina. We also present results related to perceptions of flood hazards, of being under- or overinsured, and measures taken to mitigate flood damage.