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Association of State Flood Plain Managers Association of State Flood Plain Managers
Association of State Flood Plain Managers

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New Wharton Issue Brief: Addressing Affordability in the National Flood Insurance Program
Tuesday, September 3, 2013

ASFPM is pleased to post a new issue brief jointly published by Wharton Risk Center and Resources for the Future, “Addressing Affordability in the National Flood Insurance Program.” This brief was written by Carolyn Kousky (RFF) and Howard Kunreuther (Wharton).

Last July, the President signed the Biggert–Waters Flood Insurance Reform Act with overwhelming bipartisan support from Congress. This bill included new provisions designed to improve the program’s financial basis, including the phasing out of premium discounts. Some legislators are now wavering on their commitment to risk-based pricing for flood insurance because of concerns their constituents will not be able to afford flood insurance. A delay in implementing the flood reform legislation could impede the financial soundness of the NFIP and discourage policyholders from cost-effective risk mitigation measures. As the issue brief indicates, the NFIP should not address affordability through discounted insurance premiums. The authors propose a means-tested voucher program coupled with a loan program for investments in loss reduction measures, made affordable by reductions in the NFIP risk-based premium.

The brief linked here (22 pages) begins with a discussion of the history of premium discounts in the NFIP and features a case study of take-up rates, policy discounts and low-income households in Ocean County, New Jersey, where 40,000 buildings were damaged by Hurricane Sandy. The brief also describes the authors’ proposal for an insurance-loan-voucher program to encourage homeowners to undertake risk-reduction measures. The section on “Designing a Coupled Voucher and Mitigation Program” includes an example calculation of costs of mitigation loan and NFIP premiums, cost of the program to the federal government and a homeowner, and estimates of program costs for Ocean County coastal communities that experienced storm surge by Hurricane Sandy.

An abridged version linked here (4 pages) in the Wharton Risk Center’s issue brief series, summarizes the affordability issues stemming from the flood reform legislation and describes the authors’ proposal for an insurance-loan-voucher program to encourage homeowners to undertake risk-reduction measures. It includes an example calculation of costs of mitigation loan and NFIP premiums, cost of the program to the federal government and a homeowner, and estimates of program costs for Ocean County coastal communities that experienced storm surge by Hurricane Sandy.





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