Flood insurance literacy and flood risk knowledge: Evidence from Portland,Oregon

Flood costs are escalating due to climate change and increased development in hazardous areas. Flood insurance plays a critical role in financial recovery, but there is very little research on how well consumers understand flood insurance policies. Poor insurance literacy could lead to suboptimal risk management decisions. This paper presents some of the first evidence on homeowner flood insurance literacy from a survey of residents in Portland, Oregon. We find that while a basic understanding of general insurance terms is widespread, details about flood insurance policies are not well-understood and many respondents do not know the specific terms of their policy. Residents of the 100-year floodplain are more likely to know that their homeowners’ insurance does not cover flooding, but do not have substantially better understanding or knowledge of specifics about their policy than those outside the floodplain. We also find that the majority of survey respondents did not learn about their flood risk or the cost of flood insurance until after making an offer on their property.