“Floods are low-probability but high-consequence events,” Wharton professor Robert Meyer, an expert on both insurance and consumer behavior, told me. “Our brains not well wired to make sensible decisions on that.”
Probably to cope with the bleak harshness of reality, humans have evolved to be both optimistic and amnesic, Meyer suggested. We think bad things only happen to other people and forget the pain when bad things do happen. People also tend to follow the crowd; if their neighbors aren’t getting flood insurance, then they think it’s fine for them to skip it, too.
Meanwhile, there are few structural incentives for people to buy flood insurance. It’s mandatory for homeowners with federally backed mortgages in FEMA’s high-risk zones, but those are few. And nobody else has to buy it. Some private carriers are starting to offer it, but consumers still have to seek it out. And that $800 you might spend on a premium buys a lot of gasoline and eggs.
