Clark University

Flood Insurance: Some Determinants of Adoption

Author(s): Duane D. Baumann and John H. Sims
Source: Economic Geography, Vol. 54, No. 3 (Jul., 1978), pp. 189-196
Published by: Clark University
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ECONOMIC GEOGRAPHY
VOL.

54

JULY,

1978

No.

FLOOD INSURANCE: SOME DETERMINANTS OF ADOPTION

DUANE D. BAUMANN

Southern Illinois University

JOHN H. SIMS
George Williams College

The literature on response to natural hazards is surveyed to identify fa

tors possibly at work in determining what coping behaviors are adopte
These factors are then explored in the context of a specific study of t
purchase or nonpurchase of flood insurance in the floodplain communitie
of Seguin and New Braunfels, Texas. Three factors are found to be signif
cantly related to insurance adoption: previous experience of flood damage
social class, and a single dimension of personality-internal-external locu

of control.

overlapping, categories. First, there is

An overriding question in all problems
concerning human adjustment to ignorance
natural of the hazard. The logic here
as follows: the rate of adoption of
hazards is how people deal withruns
uncerflood insurance is positively related to
tainty and risk. Why do some persons
the amount of information possessed
seek refuge when alerted by a tornado
about
the flood risk. The implication for
or hurricane warning while others
wait
public policy is clear: educate the public
passively? Why do some men insistently
aboutdo
the risk and insurance sales will
settle in hazardous zones? And why
increase.
only some persons adopt anticipatory
adthe evidence shows that it is not
justments so that the hazard event,But
if and
that easy.
when it occurs, finds them prepared?
In First of all, ignorance of a
hazard in hazard-prone areas is rare. Secthis paper, the general issue of coping with the hazardous unknown is ap- ondly, when there is variation in amount
proached by focusing on a single exam- of knowledge, it often is unrelated not
only to type of adjustment but, indeed,
ple of such behavior-variation in the
even to whether or not any adjustment
adoption of flood insurance among
is made. In two studies, one in Texas,
dwellers of the floodplains in New
another along the eastern seaboard, it
Braunfels and Seguin, Texas.
was shown that although virtually everyThe numerous possible explanations
one knew of the hurricane threat, there
for why some do and others do not inwas enormous variation among the resisure themselves against flood can be condents as to what, if any, adjustment meaveniently grouped into three, sometimes

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190

ECONOMIC GEOGRAPHY

sures were taken [2; 5]. In another study,whose actions demonstrate a belief in
an extensive educational program con- prevention. In 1957, Wolfenstein [211
cerning tsunami warning and flood riskssuggested that the ". .. important factors
in attitudes toward future dangers are
resulted in virtually no effect upon
estimates of whether anything can be
choice of adjustment [7]. Finally, in an
done about them, and whether the indiattempt to understand why persons
choose to live in flood-prone areas, Kates'
vidual believes himself to be in a posi[9] findings demonstrated various, in-tion to do anything." Could it be that
deed, diametrically opposed adjustment the person who is more confident of his
responses among those who shared the own ability to determine the future is
same awareness of the flood hazard. In
more likely to purchase flood insurance
than those who believe their lives to be
sum, most persons living in flood-prone
areas are aware of that fact. But such
controlled by outside forces?
awareness does not inevitably, or even Considerable research demonstrates
the importance of a psycho-dynamic trait
preponderantly, lead to rational adaptive

behaviors, such as insurance.

The second thrust in our search for

known in the literature as the "internal-

flood insurance leads us to a number of

terns that facilitate control of their en-

external locus of control" [17; 13; 8; 19].

It suggests that "internals" display a
factors that might be active in accounttendency to adopt behavior pating for the adoption or nonadoption greater
of

vironment. For example, internally-orivariables that can be broadly categorized

ented individuals are more cautious unas psychological. Prominent among these
are those defenses against anxiety that der conditions of risk-taking, they are
by their violation of reality and reasonmore likely to practice birth control, they
reduce the hazard threat. Thus, occuare more achievement-oriented, and they
pants of a floodplain may be fully awareare more likely to participate in socialgroups. Externally-oriented reof the possibility of a flood, but use action
a
variety of devices to exclude themselvesspondents, on the other hand, tend to
from its impact. For instance, in the Gal-refrain from action, express feelings of
veston study, 16 percent of the respon-powerlessness, experience debilitating
dents asserted that while a hurricane
rather than facilitating anxiety, and lack
self-confidence.
would surely come again it would not
do
so in their lifetime; and a third of the
One study [18] explored the relationrespondents felt that they personally ship this personality dynamic might have
would escape damage from future storms to coping with hazard threat. It was
found that in contrast to Illinoisans, re[3]. Adams [1] characterizes persons
who respond in such ways as those who spondents in Alabama believed that God,
"... behave not as risk-takers but as
fate, or luck controlled their lives; they
rationalizers engaging in the perceptual
had less confidence in their ability to
distortion of environmental informacontrol their environment; and they were
tion . . ."
less trusting of the existing control sysBut if there are psychological factors tems, such as mass media warnings. Conat work in denying or minimizing the sequently, the Alabamians appeared less
effect on one's self of an acknowledged likely to adopt appropriate actions to
hazard, there are also psychological fac- cope with the threat of tornadoes. It is
tors that appear to be related to coping reasonable then, to acknowledge the posdirectly with such threats. Thus, some sibility that personality may play a part

people behave as if there is little they in determining the disproportionately

can do to ameliorate the potential dam- high tornado fatalities found in the
South. Further, one should consider what
age from floods, but there are others

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FLOOD INSURANCE

191

part this and other dynamics of person- to a great extent, people do not take ad
ality might be involved in determining vantage of disaster relief.
But what of "relief" from flood in the
response to other hazards.
One other area of consideration is inform of engineering structures; what has
cluded under our use of the "psychologibeen the effect of beliefs in flood proteccar' rubric-attitudes toward disaster retion? This question's importance is highlief and governmental protective works.
lighted by the fact that the continually
One possible consequence of the increasincreasing damage from floods is attributed mainly to expanded investment in
ing federal role in relief and rehabilitation, from $52 million in 1953 to $2.5
flood-prone areas [15]. Flood protection
billion in 1973 [11], may be that people
is provided by structures, such as levees
are less reluctant to settle in flood-prone
and reservoirs, up to the point of the
areas, and perhaps less likely to adopt
project-design flood. However, damage
preventive adjustments. "Why should
is not prevented for the rare floods that
exceed that level. Could it be then, that
one worry since the government will bail
you out." However, although reasonable,
the adoption of flood insurance has remained relatively low because floodthis hypothesis is not strongly supported
prone residents have an unwarranted
by the available evidence; surprisingly,

1000 -

500 -

100-

o - _ COMBINED SALES

^"^~~~~A-

. _ -- - SEGUIN, TEXAS

__

"-

EL

i~~~~~~~i

CO

co

r-

10
-

Z-

L'.

DEC

1970

1971

1972

DEC. MAR.
1976 1977

Fig. 1. Policies of Flood Insurance: New Braunfels an

1977.

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192

ECONOMIC GEOGRAPHY

chased. These are: knowledge of the

faith in the existing engineering strucflood threat, mobilization of psychological defenses against anxiety, a sense of
Let us look at one example. Canyon
Dam was completed in 1964 by the U.S. personal efficacy in controlling one's own
Army Corps of Engineers as a multipur- future, attitudes towards the institution
pose project including control of the of disaster relief, belief in the protection
Guadalupe River for flood control [6]. of flood control structures, and cost/
Although flood insurance was first avail- benefit considerations.
able in 1970, by the time of the disas- Needless to say, it is the rare study
trous flood in May 1972, only ten policies that could comprehend this variety of
surveyed factors. But it is important that
had been sold in both Seguin and New
Braunfels. The explanation for the low such a consideration of the whole inadoption of insurance was that ". . . peo- form both a study's selection of variables
ple in New Braunfels and Seguin areas
and the interpretation of its findings.

tures?

had become complacent about the risk

of flooding because they believed Canyon Dam would protect them from fu-

ture disasters. This false sense of security

THE NEW BRAUNFELS AND SEGUIN,

TEXAS STUDY

A random sample of 144 single-family

homeowners living on the floodplain of
New Braunfels and Seguin, Texas, half
of whom had purchased flood insurance
and half of whom were uninsured, were
The third direction into the search for
a better understanding of the factors that administered a battery of instruments.
affect the adoption of flood insurance These included Rotter's [17] Internalpoints to economic considerations. First,External Locus of Control Test and an
interview schedule developed primarily
people live on the floodplain because
they expect it to be profitable, and it may by Howard Kunreuther of the Univerbe that economic benefits of locating insity of Pennsylvania to obtain informaa hazard-prone area simply outweigh thetion on the homeowner's economic situlosses incurred by the occasional flood; ation, his experience with floods, his
that is, it may be that over the long runawareness and use of flood adjustments,
insurance costs more than the occasional
his expectations of future flooding, his
perception of the flood protection proloss. This would be particularly probable
if, as is often the case, the costs of flood
vided by Canyon Dam, and finally, the
characteristics of his social background.
damage are borne by the public, not the
Although space limits prevent elaboraindividual. Further, both prior research
tion, it is important to note those factors
[101 and common sense suggest that

hastened the occupation of the 'protected' floodplain below the dam and
encouraged building in other 'unprotected' canyons and valleys" [16].

amount of income is a determinant of

investment in adoption of hazard adjustTABLE 1

ments. Thus, one might expect a low
FLOOD EXPERIENCE AND INSURANCE STATUS
adoption of flood insurance among low
income groups because they cannot
Flood Experience
afford it, and among high income groups
Insurance None
Some
Total
whose large assets provide them with Status
a
No.
%
No. % No. %
sufficient margin of protection.
Insured 4 8
In summary, a brief overview of fac70 75 74 51
tors influencing responses to natural hazUninsured
47 92
23 25 70 49

ards identifies a number of factors that

Total
51 100
might possibly be at work in determining
whether or not flood insurance is pur- X2 = 59.94 Prob. = 0.0001

93 100 144 100

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FLOOD INSURANCE

193

TABLE 2
PERCEPTION OF SEVERITY OF FLOOD DAMAGE TO PROPERTY AND INSURANCE STATUS

Perceived Severity of Flood Damage

Not

Very Serious
Insurance

Status
Insured

Uninsured
Total

No.
57
9
66

%
86

14
100

Very Serious

Fairly Serious
No.
11
10
21

No.

None

No.

53

43

48

57

46

93

100

50

100

100

2 = 73.76 Prob. = 0.0001

that were found to be unrelated to the

magnitude of the event experienced [20];

adoption of flood insurance: first, these
so, too, may be the decision to adopt
included most of the social background
flood insurance. Respondents rated the
characteristics of the respondents; thus,
damage to their property as either very
serious, fairly serious, or not very seriage, marital status, family size-none of
these were related. Second, the responous. Among the group who felt their loss
dents' belief in protection from the dam,
was very serious, 85 percent were insured; of those who assessed their damhis expectations regarding future floods,
his attitude toward disaster relief-none
age as fairly serious, 53 percent had
of these was related to the decision to
bought flood insurance; only 43 percent
were insured of those who considered
purchase flood insurance.
their loss as not very serious (Table 2).
What then, is important? Three factors appear: first, flood experience, that
However, even the experience of
is, whether or not the respondent had
severe damage by no means guarantees
the adoption of insurance. Kunreuther
suffered damage from the floods of 1972[11, p. 1] states: "In Harrisburg, where
73; second, social class; and third, pera large section of the city had been insonality. Let us explore these one by one.
and damage had been unusually
The most important factor relatedundated
to
the purchase of flood insurance was
severe, only 957 residential policies were
whether or not the respondent had ex-sold during the first year following the
perienced damage during the serious re-storm despite concerted publicity efforts
cent floods of 1972-1973. Sixty-five per-on the part of the insurance industry."
cent of the interviewed homeowners had

And further, even when firsthand experi-

ence with flood damage does lead to the

experienced some flood damage. Of
adoption of insurance, it may be but a
these, 75 percent are now protected
transitory, crisis-response phenomenon.
against future losses through flood insurance (Table 1). Only eight percent of Thus, prior to the May, 1972 flood disthe respondents who did not experienceaster, only 10 policies had been sold in
damage from floods purchased flood in-Seguin and New Braunfels, but by Desurance. Moreover, the insured respon- cember of the same year sales increased
dents were asked what they consideredto 237 and by the following June, 17 perto be the most important reason for purcent of the potentially insurable struc-

chasing insurance, and 90 percent re-tures were covered. However, this re-

plied that it was because they had experienced a flood.

markable increase in the rate of adoption

curacy of perception is related to the

ly after December (Figure 1). Thus,

Prior studies have shown that the ac-

of insurance was not sustained. Instead

the rate of increase dropped dramatical-

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194

ECONOMIC GEOGRAPHY
TABLE 3

RESPONDENT'S ANNUAL INCOME AND INSURANCE STATUS

Income

Insurance
Status

Less than 10,000

No.

10-18,000

Greater than 18,000

No.

15

28

31

58

Uninsured

38

72

22

42

53

100

53

100

Total

No.

Insured

28

74

38

100

28

X2 - 19.94 Prob. = 0.0001

Another social-class indicator, the level

only six months after the flood the motiof formal education, is also related to
vational effect of the experience appears
to have lessened and sales of insurance
the purchase of flood insurance; thus,
grew only slightly. Moreover, in the
the6 adoption of insurance increases with
months prior to January, 1974, the the
numrespondent's level of education.
ber of policy holders actually declined.
Among those floodplain dwellers who
When experience is held constant,had
so-completed no more than elementary

cial class, as measured by income school,

and
only 15 percent had purchased
insurance; of those inhabitants whose
education, appears to be an important
factor related to the purchase of flood
highest level of education was high
insurance. Among the homeowners school,
who
nearly half were insured; and

earn less than $10,000 annually, 28 more

per- than two-thirds of the homeowners
cent purchased flood insurance; among
with at least some college had purchased
the middle-income group, over half
ofinsurance (Table 4).
flood
the respondents were insured; and of
As would be expected, annual income
those whose income exceeded $18,000,
and level of education were highly cor75 percent were insured (Table 3). Ourrelated; unfortunately, our sample size
original notion was that the highest in-was not sufficient to answer the question
come group would be more reluctant to
of which is the more important factor
purchase insurance than the middle inin influencing purchase of insurance. But,
come group because of their large assets
the observed relationship between these
two measures of social class and the
and self-sufficiency. Clearly this is not
the case and other factors, distinct from
adoption of insurance remains. And its
one's economic resources, are at work. significance is the more marked because
TABLE 4

TABLE 5

RESPONDENT'S EDUCATION AND INSURANCE STATUS

RESPONDENT'S LOCUS OF CONTROL AND

INSURANCE STATUS

Education (years)
Insurance
Status

0-8

9-12

No. %
Insured

Uninsured
Total

greater
than 12

Locus of Control
Insuranc
Status

Ne Internal Middle Group Ex

No. % No. %

No. % No.

23 49 47 67 Insured

48

60

43

23 85

24 51 23 33 Uninsured

32

40

27 100

47 100 70 100 Total

80 100

4 15

X2 = 21.52 Prob. = 0.0001

20

:ternal

No. %
6 35

27 57 11 65
47 100 17 100

X2 =5.60 Prob. 0.0590

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FLOOD INSURANCE

195

of its disagreement with previous findan important mechanism accounting for

the correlation of social class with the
ings that suggest that socioeconomic status and education are only minimally
adoption of flood insurance.
related to the adoption of damage-mitigating adjustments [4].
SUMMARY AND CONCLUSIONS
The fact is clear that the higher the
income and the level of education, the
We may now ask two summary quesmore likely is the homeowner to pur- tions: first, what is the constellation of
chase flood insurance. But why these rethe characteristics investigated that dislationships hold is not at all clear. Onetinguishes the homeowner who purchases
flood insurance from the one who does
explanation is that those with higher innot? The insured homeowner is he who
comes, who are most likely to be the
better educated, have the financial rehas suffered damage from a flood, who
sources to purchase insurance. Another enjoys a relatively higher social class
explanation views the distribution of
position, and who is internally-oriented,

flood insurance adoption as a response that is, feels that the effects of the future
to the availability, acquisition, and utili- on him are determined by his own cur-

zation of information. However, the Haas

rent behaviors.

[7] study suggests that elaborate educaNow for the second and final question:
tional programs often fail to produce the what are the implications for policy of
desired change. Yet, another speculation our findings? It certainly is not for a
focuses upon factors internal to man. To greater effort to inform floodplain resiwhat extent might some psychological dents about flood insurance-our respondimension be related both to variation

dents were all very well aware of its

in social class and to adoption of flood availability. It may be that the decision
insurance? Perhaps we can shed some
to purchase insurance is more related to
light on this last question.
those psychological dimensions which
Whether or not a person has purchasedencourage some persons to utilize such

flood insurance is related to his belief in

information and inhibit others from do-

how much control he possesses over the ing so. Rather than more information,
events of his life. Respondents were
perhaps, as White suggests, what is
classified into three groups according toneeded is a program designed to make
their scores on Rotter's I-E Scale-"In". . . appeal based upon or cultivating
ternals" (those who feel they are in con- an individual's sense of efficacy in coptrol of their destinies); "Externals"ing with the hazard" [20, p. 46].
(those who feel their lives to be directed Our data provide an interesting enby outside forces); and those in between.dorsement of White's advice. Contrary
Sixty percent of the internal-oriented to what one might expect, those homehad purchased flood insurance; 43 per-owners who perceived Canyon Dam as
cent of those who scored midrange wereprotection against floods were more likely
insured; and only 35 percent of the ex- to purchase flood insurance than were
ternal-oriented were insured (Table 5).those who felt that the dam would not
Further, to suggest an answer to a
protect them. When this is juxtaposed
previous question, a respondent's scorein Kunreuther's [12] finding that flood
on the I-E Scale was positively corre- area homeowners who take personal prolated with his social class-a finding ob- tective actions to improve their propserved in previous research [17]. That
erty's ability to withstand a future flood
is, respondents with higher incomes and are, at the same time, significantly more
higher levels of education are more likely likely to have flood insurance, a case
to be internally-oriented. Hence, this par- begins to be built for positing what
ticular psychological dimension may be might be called a "coping character

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ECONOMIC GEOGRAPHY

196

type." 1 That is, it would appear that

6. Clark, C. T., and Willis, J. E. 1967. Canyon Reservoir. Austin: Bureau of Business
there are psychodynamically copers and
Research, Univ. of Texas.
noncopers. The former are persons who
7. Haas, J. E. 1971. Unpublished monograph
tend to take advantage of whatever
on an evaluation of the effectiveness of the
means are available to mitigate the imregional tsunami warning system in Alaska.
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the other hand, tend either to ignore or Science, Univ. of Colorado.
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Variable." Psychological Reports, v. 28, pp.
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9. Kates, R. W. 1962. Hazard and Choice Perwe would better heed White's counsel

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efficacy in coping" by focusing not on his

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Ecological Perspective: Hypotheses and

1 An interesting analogy may be found in re- Models. Toronto: Natural Hazards Working
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