The Benefits of Uniform Flood Insurance

Grislain-Letrémy, Céline; Lemoyne de Forges, Sabine

Grislain-Letrémy, Céline; Lemoyne de Forges, Sabine (2015), The Benefits of Uniform Flood Insurance, Geneva Risk and Insurance Review, 40, 1, p. 41-64. http://dx.doi.org/10.1057/grir.2014.14

Type

Article accepté pour publication ou publié

Date

2015-03

Journal name

Geneva Risk and Insurance Review

Volume

Number

Publisher

Springer

Pages

41-64

Abstract (EN)

Prevention policies against flood, such as dams or levees, are commonly designed by local jurisdictions and for most, they exert externalities on neighbouring jurisdictions. We study a model in which each jurisdiction chooses its collective prevention effort depending on the flood risk and on the insurance system that covers its inhabitants. As compulsory uniform insurance depends on all insureds' risk, it enables partial integration of prevention externalities by jurisdictions. We determine under which conditions compulsory uniform insurance Pareto dominates risk-rated insurance.

Subjects / Keywords

Flood; insurance; collective prevention; interjurisdictional externalities

JEL

D62 - Externalities
H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Q54 - Climate; Natural Disasters and Their Management; Global Warming