A Theoretical Study on Storm and Flood Insurance in Korea

The storm and flood insurance, which was introduced recently to substitute the disaster relief system to moderate government"s financial burden and enhance people"s effort to reduce damage, seems to suffer various problems. This paper conducts a theoretical analysis on various aspects of the storm and flood insurance to provide insight on those issues and draw policy implications. First, the coexistence of disaster relief with the storm and flood insurance is likely to harm the penetration of the storm and flood insurance. Second, the current premium system is likely to induce people to make less efforts to reduce damage due to moral hazard problem. Third, current support for damage-reducing efforts may not fulfill its purpose and hence should be scrutinized carefully.