Designing Flood Insurance for the Greater Good

Governments face a tough decision when it comes to flood insurance in high-risk areas. They need to balance affordability with the risk of concentrated demand that can lead to adverse selection. This is especially true in Canada, where the Canadian Flood Insurance Program (CFIP) aims to provide affordable insurance while minimizing the burden on taxpayers.

The CFIP has several policy objectives, including affordability, adequate compensation, and market participation. To achieve these goals, the program's design elements, such as deductibles, limits, exclusions, and subsidies, play a crucial role. A novel dataset of 700,000 simulated flood events was used to evaluate the impact of these design elements on the policy objectives.