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Computer simulation experiments were conducted to determine the effects of alternative sources of uncertainty on the willingness to pay for flood insurance. Two alternative insurance protection schemes were investigated: coinsurance and fixed coverage. The question investigated is to what extent does the insurance scheme influence how purchasers respond to risks? Floods were assumed to be log normally distributed and the effects on the purchase of insurance of uncertainties in the parameters of the distribution were explored using response surface analysis. Results indicate that fixed coverage insurance provisions shift most of the uncertainty in the physical parameters governing natural disaster occurrences away from the insuree and onto the insurer. The results also show that the form of the damage function has little effect on the demand for flood insurance.- Authors
Additional Publication Details
Flood risks and willingness to purchase flood insurance.