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BW-12 Impacts on Harris County

BW-12 Impacts on Harris County. Joshua Stuckey. Why is the Permit Guy talking about Flood Insurance?. Before we get to the study…..I want to say a few thing. What is Insurance…And why do we buy it?. Fundamentals – Risk Aversion. Actuarial Rate. Risk X Expected Loss

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BW-12 Impacts on Harris County

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  1. BW-12 Impacts on Harris County Joshua Stuckey

  2. Why is the Permit Guy talking about Flood Insurance?

  3. Before we get to the study…..I want to say a few thing.

  4. What is Insurance…And why do we buy it?

  5. Fundamentals – Risk Aversion

  6. Actuarial Rate • Risk X Expected Loss • Bill has a 50% Chance of losing $100 dollars any given year. • Actuarial Rate = .5 X 100 = $50 Dollars

  7. What Do You Prefer? 100% Risk of Losing $50 OR 50% Chance of Losing $100

  8. What Do You Prefer? 100% Risk of Losing $20 OR 20% Chance of Losing $100

  9. Pooling Risk – Bill and Bob

  10. Fundamentals – Law of Large Numbers

  11. Where Is the Pool? Source – Insurance and Behavioral Economics – Kunreuther, Pauly, McMorrow

  12. Subdivision A vs Subdivision BAdverse Selection Subdivision A Subdivision B

  13. Fundamentals– “Houston we have a problem.”

  14. Okay…I’m done

  15. Study Background • From the Start - 1968 • Debt • BW-12 • Politics

  16. Slide By John Grounds, PE

  17. Study Background • From the Start - 1968 • Debt • BW-12 • Politics • How bad is bad • The Perfect Storm

  18. The Perfect Storm • IKE - 2008 • BW-12 - 2012 • New Coastal Maps – 20??

  19. The Study • We will discuss: • Background • What was the intent • Where the data was taken • Who was in the study • How it was done • Results • Where to get a copy: Email me at josh.stuckey@hcpid.org • Who did the study: Commissioned by HCPID, managed by Norex Engineering and executed by Quanticon LLC

  20. What was the intent? • Wealth Effect (Value) • Income Effect (Available Financial Resources)

  21. Wealth Effect • $200,000 Mortgage • 4.75% interest • 30 Year Term = Monthly Payment - $1043 • “Additional” Insurance Impact of $2400 yearly or $200 monthly implies an equal home value of $161,700 • Or… elsewhere without insurance I could have purchased a home value of $238,000

  22. Wealth Effect • Said another way… • Based on a $200K home at 4.75%, for every additional $261 of cost there is a perceived economic reduction of $50K in value compared to someone with the same loan not incurring the additional cost.

  23. Income Effect Simply….. “If you give more money to the NFIP, you have less to spend elsewhere.”

  24. Where We Studied

  25. Who We Studied • 21,629 Properties • 15,489 Single Family • 1,794 Commercial • 4,346 Single Family (Non Primary Homes) • Common Variables • Assumed Affected By BW-12 (Subsidized) • Within Map Revision Area

  26. How was it done?

  27. We hired Ph.Dsin Economic$

  28. Results Summary • Immediate: • $12,249,147 reduction in annual business volume • Fully Realized BW-12 • $43,127,257 reduction of annual business volume • $270,269,940 reduction of property value (lets talk about this)

  29. Results – Interesting Findings

  30. Results – Interesting Findings

  31. Results – Interesting Findings

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