Encouraging resiliency through autoenrollment in supplemental flood insurance coverage

Abstract

Flooding is the most common and costly natural disaster, with losses escalating due to climate change. For millions of US homes exposed to flood risk, property-level investments in flood resilience offer an attractive strategy to manage losses. But financing such investments remains a challenge. One option is to harness insurance. We use field data of residential flood insurance purchases from a private insurer that offered a supplemental policy (FloodReady) to cover the costs of rebuilding with flood-resilient materials. We exploit a change in the default purchase option to estimate how default enrollment in FloodReady influences take-up. We estimate that autoenrollment increases take-up from 12% to 32%. This dramatic increase suggests that behavioral interventions can be used to improve the financial capacity of homeowners to reduce future flood losses. That said, the fact that most policyholders still actively opt-out even under autoenrollments indicates the limits of default effects in this context. We discuss potential moderators and implications for default effects across settings.