Association for Public Policy Analysis & Management

On October 30, 2012, “Superstorm” Sandy hit the U.S. eastern coastal cities. The water levels along the U.S. east coast from Florida northward to Maine rose immediately as the storm surged inland. The impacts of Sandy are devastating. Sandy has caused an estimate of 147 direct deaths, with 72 deaths were recorded in the United States. Sandy has displaced numbers of households and caused tens of billions of US dollars lost financially, and thousands of buildings damaged or destroyed. At least 650,000 houses were either damaged or destroyed, with the majority of the damage caused by storm surge and/or waves. An estimate between 30 and 50 billion dollars in damage in the United States was caused by Sandy.

In the United States, a broad range of research is currently investigating this pressing issue of coastal flooding. An important economic instrument in this is flood insurance. Flood insurance is commonly used as a tool of flood risk management that reduces the economic impact and facilitates recovery at the aftermath. A good flood insurance program has the potential to reduce risky behavior, promote risk-awareness, and encourage flood proofing. This study focuses on the potential of flood insurance based mechanism to support risk management in the U.S. residential zones that are prone to flooding.

National Flood Insurance Program (NFIP), since its establishment in 1968, has provided coverage to homeowners that adopt minimum floodplain management policies. FEMA produces Flood Insurance Rate Maps (FIRMS) that depict the flood elevation throughout the participating counties in order to determine household’s risk and associate premium. NFIP has been an interest since 2005 when floods of claims came from hurricanes Katrina and Rita. Nevertheless, NFIP changes insurers’ risk awareness, makes them less careful about their actions than true losses would impact (Zahran et. al, 2008).

This study attempts to examine whether NFIP has unanticipated consequence of encouraging more buildings in the area that most vulnerable to flood risk (Boulware 2009). NFIP participation increased both single family and multifamily development in Florida counties, however; no evidence yet been found that induced development from the program is any more or less more severe in high flood risk areas (Browne et. al., 2009). For this an agent-based model will be created with which data can be gathered that provides insight to the potential of NFIP to improve risk management to residences located in flood prone areas. The goal of the agent-based model is to provide multiple policy scenarios and to provide closer look of homeowners’ decisions regarding flooding risk and insurance policy. Within the study, an agent-based model will be conceptualized, coded, verified, validated and used to answer a specific question: What are the effects of the NFIP on homeowners’ decisions whose property located on floodplain and how can the program can be structured to improve flood risk management better?