Should flood insurance be mandatory? Insights in the wake of the 1997 New Year’s Day flood in Reno–Sparks, Nevada

Abstract

The USA faces major challenges from flooding, with more than 12% of its population (over 30 million people) living in areas of periodic inundation. The National Flood Insurance Program (NFIP) has offered flood insurance to renters, homeowners and businesses since the late 1960s, yet only about a quarter of those eligible have purchased policies that would reduce the risks caused by flooding. This research investigated why single-family homeowners do or do not choose to purchase flood insurance. The study was conducted within the context of the 1997 New Year’s Day flood in Reno, Nevada, an area with a long history of flooding. The paper discusses the evolution of the NFIP, focusing on the Reform Act of 1994 whereby the federal government attempted to mandate coverage and transfer decision-making responsibility from individuals to institutional lenders with links to the federal government. The most statistically significant variables in an individual’s decision to purchase flood insurance were found to include: (1) lender compliance; (2) perceptions of personal vulnerability to flooding relative to other hazards; (3) a concern that flooding will be a constant threat; and (4) concern that government assistance will not be adequate or forthcoming during a major flood disaster. While the Reform Act will no doubt increase flood insurance coverage, it has limitations; for example, not all dwellings fall under the purview of the new regulations (especially those outside of Special Flood Hazard Areas). Further, the paper questions whether the new regulations will, in fact, reduce risk, since the shift away from individual responsibility may cause some individuals to develop a ‘false sense of security’ and choose to forego any mitigation or preparation activity. Importantly, because the decision to purchase flood insurance as a form of hazard mitigation is still a voluntary choice for many individuals, it warrants continued study.