Impact of post-disaster federal assistance on the national flood insurance program

Abstract

This research tested the hypothesis that post-disaster federal relief program crowds out the demand for flood insurance in the U.S. To do that, this research has collected historical data between 2016 and 2020, and conducted propensity score-based analysis to understand the causality between post-disaster federal assistance and flood insurance enrollment in the flood affected counties in the U.S. In the first part, the treatment variable has been considered as binary to compare the effect of the availability of federal assistance to that of non-availability of federal assistance in a flood affected county by using propensity score matching method. It was found that the availability of the federal payout in a county in a year increased the number of flood insurance policies by 5.2 % and the total insured value of the policies by 4.6 % in the following year. Next, the treatment variable was considered continuous and was used in a generalized propensity score method to develop a dose response function, i.e., a function that depicts the changes in the outcome variables based on different levels of treatment. It was found that for each 1000 households in a county that received federal assistance, the percentage increase in the number of flood insurance policies was 3.41 %. On the other hand, for each million-dollar of federal assistance in a county, the total insured value of the flood insurance policies increased by 1.96 %. Therefore, this research has concluded that, contrary to the hypothesis, the availability of post-disaster federal assistance increased the flood insurance enrollment in the U.S.