A Methodological Approach for Pricing Flood Insurance and Evaluating Loss Reduction Measures: Application to Texas

Abstract

Wharton School, and co-director of the Wharton Risk Management and Decision Processes Center. He has a long-standing interest in ways that society can better manage low-probability, high-consequence events related to technological and natural hazards. Erwann O. Michel-Kerjan is managing director of the Wharton School's Risk Management and Decision Processes Center, and teaches Value Creation in the Wharton MBA program. He is also Chairman of the OECD Secretary-General Board on Financial Management of Catastrophes, which advises its thirty-four member countries on these issues. Dr. Michel-Kerjan was named a Young Global Leader (YGL) by the World Economic Forum (Davos), an honor bestowed to recognize and acknowledge the most extraordinary leaders of the world under the age of 40; he currently co-leads the Global Risks component of the G20 YGL Paris Initiative under the High Patronage of President Sarkozy. He has worked extensively on terrorism, hurricane and flood insurance and how to reduce America's exposure and the need for federal disaster relief. Dr. Michel-Kerjan is the author of several acclaimed books, including, most recently, The Irrational Economist (with P. Slovic) and At War with the Weather (with H. Kunreuther) which received the prestigious Kulp-Wright award for the most influential book on risk management. ® aims at better understanding flood risk in the United States and the role that public and private insurance can play in providing financial coverage and reducing losses from this risk to residents in areas subject to water damage from floods and hurricanes. We discuss a methodology for assessing risks, measuring the costs and benefits of a selected number of loss reduction measures and comparing different pricing methods with those used by the National Flood Insurance Program (NFIP). We believe the methodology developed in this study will be of interest to key stakeholders and can be generalized for other states in the United States. and to members of the Association of State Floodplain Managers, FEMA, and Resources for the Future for providing us feedback on a previous version of this report. Carol Heller provided editorial assistance. This report is for informational purposes only and contains non-binding indications as well as personal judgment and opinions. It does not contain any business or legal advice, solicitation, offer or commitment to effect any transaction or to conclude any business or legal act. Any opinions or views expressed are of the authors and do not necessarily represent those of Swiss Re, CoreLogic or the …

Cite this paper

@inproceedings{Czajkowski2012AMA, title={A Methodological Approach for Pricing Flood Insurance and Evaluating Loss Reduction Measures: Application to Texas}, author={Jeffrey Czajkowski and Erwann O. Michel-Kerjan and James Dinan}, year={2012} }