This week’s flooding in Texas highlights how vulnerable we are to flood risks. Texas is extremely prone to flooding yet is among the worst states when it comes to flood-control spending. Texas is exposed to significant riverine flooding in addition to storm surge flooding caused by hurricanes and tropical storms. Texas has the second most flood insurance premiums in the US (second only to Florida).
In the past year, I have been serving on a National Academies committee on flood insurance for negatively elevated structures. I have learned a lot about flood insurance, incentives, and risk. I can’t say anything about the report yet except that it will be released soon, but I can tell you a little about the problem and how management science has helped us understand how to mitigate flood risks.
Floods occur frequently (although not frequently enough to motivate people to mitigate against the risks) and when floods occur, they do a lot of damage. The damage is usually measured in terms of structure and property damage, but flooding also leads to loss of life and injuries. Flooding is not just a coastal issue – floods occur along rivers, in areas with high water tables, and in urban areas where infrastructure channels water in such a way that it creates flood risks. Cook County, Illinois has chronic urban flooding issues that is expensive. Floods lead to enormous socioeconomic costs. Two-thirds of Presidential disaster declarations involve floods.
The basic approach to managing flood risks is to (1) encourage people not to build in floodplains and (2) building less flood-prone structures and communities to reduce the damage when floods occur. Getting this to happen is tough. Improving infrastructure requires an enormous investment cost either to society (e.g., flood walls), communities (e.g., FEMA’s Community Rating System), or individuals (e.g., elevating a house). A Citylab article criticizes Texas for not investing in infrastructure that could reduce the impact of floods.
On an individual level, flood insurance is required for those who live in “Special Flood Hazard Areas” (a floodplain; FEMA defines a “Special Flood Hazard Area” as an area with a >1% annual chance of flooding). Flood insurance can be really expensive, which can encourage individual homeowners to either forego insurance or mitigate against flooding. Elevating a house is expensive, but it may be a good financial choice if it reduces flood insurance by thousands of dollars per year. The reality is that most homeowners do not have a flood insurance policy even when it is required because insurance is expensive and is perceived as not needed. Many homeowners in floodplains go decades between floods, and despite the warnings and requirements, they do not see the need to pay so much for flood insurance when they have not experienced a flood.
I recommend reading Catherine Tinsley and Robin Dillon-Merrill’s paper on “near miss” events in Management Science and their follow-up paper with Matthew Cronin. Their papers demonstrate that when someone survives an event like a natural disaster that was not fatal or too traumatic (e.g., a flood that didn’t do too much/any damage), they are likely to make riskier decisions in the future (e.g., they cancel their flood insurance).
A Wharton report by Jeffrey Czajkowski, Howard Kunreuther and Erwann Michel-Kerjan entitled “A Methodological Approach for Pricing Flood Insurance and Evaluating Loss Reduction Measures: Application to Texas” specifically analyzed flood loss reduction methods in Texas. They recommend supplementing the flood insurance with private flood insurance (FEMA currently provides homeowners with flood insurance through the National Flood Insurance Program) to encourage more homeowners to purchase insurance. They also evaluate the impact of elevating structures in the most flood-prone areas, and they find that mitigation through elevation can be instrumental in reducing much of the damage.
What have you experienced with flooding?