April, 2008

Insurance and Societal Vulnerability to Hurricanes

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Katrina demonstrated the growing vulnerability of the United States to major hurricanes.  This paper analyzes the sources of growing hurricane vulnerability, due to the increasing number of people and property in the U.S. Atlantic and Gulf counties since 1950. The analysis specifically focuses on policy interventions in insurance markets, or states with "hurricane pool" residual market mechanisms.  Regressions show that coastal county growth increased after establishment of a pool by 16,000 to 22,000 persons and 4,000 to 6,000 housing units per decade. But hurricane pools do not affect the percentage growth rates of population or housing units. Direct election of insurance commissioners may have contributed to growth as well, but this increase fails to attain statistical significance. Together these results indicate a possibly significant role for insurance subsidies as driving coastal population growth. A land-falling hurricane did not slow growth during a decade, but counties with greater hurricane risk also grew significantly faster, which may be evidence that people ignore hurricane risk in making location decisions.