Factors affecting flood insurance purchase in residential properties in Johor, Malaysia

Abstract

High-impact floods have become a virtually annual experience in Malaysia, yet flood insurance has remained a grossly neglected part of comprehensive integrated flood risk management. Using discriminant analysis, this study seeks to identify the demand-side variables that best predict flood insurance purchase and risk aversion between two groups of residential homeowners in three districts of Johor State, Malaysia: those who purchased flood insurance and those who did not. Our results revealed an overall 34% purchase rate, with Kota Tinggi district having the highest (44%) and thus the highest degree of flood risk aversion. The Wilks' lambda <i>F</i> test for equality of group means, standardised discriminant function coefficients, structure correlation, and canonical correlation has clearly shown that there are strong significant attribute differences between the two groups of homeowners, based on the measures of objective flood risk exposure, subjective risk perception, and socio-economic cum demographic variables. However, the measures of subjective risk perception were found to be more predictive of flood insurance purchase and flood risk aversion.