An Interdisciplinary Approach to Household Strengthening and - PowerPoint PPT Presentation

An Interdisciplinary Approach to Household Strengthening and Insurance Decisions Prof. Rachel Davidson University of Delaware, Civil and Environmental Engineering rdavidso@udel.edu Prof. Jamie Kruse East Carolina University, Economics Prof. Linda Nozick Cornell University, Civil and Environmental Engineering Prof. Joseph Trainor University of Delaware, Public Policy and Administration CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

Pr Project Overview • Advance understanding of homeowner insurance purchase and retrofit decisions and role they play in system-wide efforts to manage coastal hurricane disaster risk • Key building blocks • Rich survey dataset as basis for homeowner decision models • Math modeling framework that includes: • Insurance and retrofit • Multiple stakeholders (homeowners, insurers, reinsurers, government) CRC 1 st Annual Meeting The University of North Carolina at Chapel Hill March 2-3, 2016

End End Us User Eng Engag agement Advisory Panel FEMA Federal Insurance and Mitigation Acting Division Director Administration, Risk Analysis Division FEMA Individual and Community Preparedness Senior Policy Advisor Division, National Preparedness Directorate Chad Berginnis Executive Director Association of State Floodplain Managers (ASFPM) NIST Applied Economics Office/ Research Economist Community Resilience Group Disaster Resilience Lead NIST Materials and Structural Systems Division CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

End End Us User Eng Engag agement Interactions to date • Phone calls before project officially began • Group calls 1/16 and 8/16 • Discussions at CRC meetings • Multiple conversations between Jackie Snelling and Joe Trainor Plans for remainder of project • Calls 1/17 and 7/17 CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

Ev Evolving View of Our End User Initial view Emerging view Broader vision for system win-win • Use previously collected data to tool is more compelling model homeowner protective action decisions • Help think thru value of mitigation investments • Quick deliverables • Whole community focus on • Independently valuable to homeowners, govt., and insurers DHS/FEMA (+ possible additions) • What drives homeowner mitigation behavior (e.g., affordability, culture) • Flexibility to add features CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

Re Research Work and Accomplishments Activity Specific tasks Due date Status 1. Homeowner Analysis (discrete choice model)………………….. -- Done • insurance purchase • Journal paper………………………………………………. 11/16 Done decision-making Policy brief…………………………………………………… 11/16 75% done • 2. Homeowner retrofit Analysis (discrete choice model)………………….. -- 95% done • decision-making • Journal paper………………………………………………. 12/17 -- Policy brief…………………………………………………… 12/17 -- • 3. Past hurricane Analysis (structural equation model).………….. -- Done • experience effect on • Journal paper………………………………………………. 12/16 90% done protective actions Policy brief…………………………………………………… 12/16 75% done • 4. Prototype decision Excel tool to predict homeowner decision- v1 — 6/17 (see future plans) tool making under different policies v2 — 6/18 5. System win-win White paper on new approach to & framework 3/17 50% done white paper to support risk reduction policymaking CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

85 % who purchase insurance Deductible Flood (a) 250 75 500 1. 1. Homeowner r Insurance Purchase Decision-ma making 1000 65 5000 Discrete choice models with stated preference data 55 P(buy wind (flood) insurance) = f(household, home, policy attributes) 45 • Flood and wind models are quite similar 35 0 1000 2000 3000 4000 5000 • Demand not very sensitive to premium and deductible Premium ($/year) • Higher probability of purchasing insurance if: 85 % who purchase insurance (b) Wind ‒ More recent hurricane experience ‒ Higher income 75 ‒ In a floodplain ‒ Younger homeowners 65 ‒ Closer to the coast Deductible 55 • Recency of hurricane experience more influential when 250 500 experienced damage 45 1000 • Insurance and retrofit are complements, not substitute (for flood) 5000 35 • Can use models to predict homeowner decisions for a region 0 1000 2000 3000 4000 5000 Premium ($/year) CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

85 % who purchase insurance Deductible Flood (a) 250 75 500 1. 1. Homeowner r Insurance Purchase Decision-ma making 1000 65 5000 55 Uses 45 • Have to price insurance so high enough for solvency, low 35 enough for adequate takeup rates. 0 1000 2000 3000 4000 5000 Premium ($/year) • Need to know how homeowners respond to price changes 85 to do that % who purchase insurance (b) Wind • What’s highest voluntary penetration we can expect? 75 • Differences in behavior help target customers 65 Deductible End Users 55 250 500 NFIP, insurance companies, government agencies that 45 1000 regulate the industry, FEMA agency personnel focused on 5000 insurance penetration and risk reduction, State Mitigation 35 Officers 0 1000 2000 3000 4000 5000 Premium ($/year) CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

2. 2. Ho Homeo eown wner er R Retrofit D Dec ecision-ma making Discrete choice models Model Alternatives with stated preference data Roof Shingles, adhesive, none Openings Shutters, impact resistant windows, none P(retrofit) = f(household & home attributes, incentive) Roof-to-wall Roof-to-wall, none Flood Elevate home, siding, elev. appliances, none • Grant has a significant effect Loan and premium reduction do not Incentive • Higher probability of retrofitting if: None ¾ Closer to the coast Low interest loan Premium reduction ¾ In a floodplain Grant ¾ Newer home ¾ <1 year since last hurricane CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

2. 2. Ho Homeo eown wner er R Retrofit D Dec ecision-ma making Uses • Programs to encourage retrofit are being developed in different states • Need to know how to design those (e.g., type of incentive, amount), which depends on how homeowners will respond • Differences in behavior help target customers End Users • Hazard Mitigation Grant Program (HMGP) • State Mitigation Officers • Pre-Disaster Mitigation Grant Prgm (PDM) • Insurance companies, NFIP • Flood Mitigation Assistance Grant Program (FMA) CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

3. 3. E Effec ect o of P Past Hu Hurricane E e Exp xper erien ence a e and R Risk P Per ercep eption o on Homeo Hom eown wner er Pro rotective Action Decision-ma making Structural Equation Model • Examined link between hurricane experience and emotions • Examined mediating effect of emotion/affect and insurance purchase • Controlled for income, race, education, perception of govt. aid, tenure in area • Support past findings on role of prior hazard experience, length of tenure, race, gender, income, and location in flood insurance purchase • Strong support for mediation effects of fear in linking prior hazard experience to protective action decisions Geographic distribution of (n=318) survey respondents in (a) state of North Carolina, and (b) study area. Uses: Understand effect of hazard events on decision-making, how to consider it in policymaking CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

4. . Prototype De Decision Tool Set inputs • Distance to coast • In floodplain • Penetration rates for flood and wind • Income Application of discrete insurance choice models for • Age regional prediction • Map of penetration • Num. hurricanes (Excel?) rates • Time since hurricane • Premium • Deductible Inputs varied by user Tool Outputs End user feedback: More interested in system win-win framework/tool than this tool CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill Feb. 1-3, 2017

5. System Win-Win Approach, Tool, White Paper The Challenge Building Little retrofit or insurance à Inadequate resources to owners recover quickly Large unplanned expenditures à Budget problems, inefficient • Difficult to make Insurers Govt. profit • Concern about insolvency Current system has limitations for all stakeholders CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill 13 Feb. 1-3, 2017

5. System Win-Win Approach, Tool, White Paper • Homeowners, govt, insurers, reinsurers Challenges in managing regional risk • Different • Multiple stakeholders involved • Objectives • Available alternatives • Biases • Timelines • Constraints • Available information CRC 2nd Annual Meeting The University of North Carolina at Chapel Hill 14 Feb. 1-3, 2017