Affordability of National Flood Insurance Program Premiums Report 1 (2015) / Chapter Skim
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, which was designed to initiate several changes within the NFIP. A core principle of the 2012 legislation was to move toward an insurance program with NFIP risk-based premiums that better reflected expected losses from floods at insured properties.1 This entailed eventual removal of discounts from NFIP policies known as "preFIRM subsidized" (pre-Flood Insurance Rate Map)
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In addition, Section 9 of HFIAA 2014 once again called on FEMA to report to Congress with a draft affordability framework. Specifically, the legislation stated the Administrator shall prepare a draft affordability framework that pro poses to address, via programmatic and regulatory changes, the issues of affordability of flood insurance sold under the National Flood Insurance Program, including issues identified in the affordability study required under Section 100236 of the Biggert-Waters Flood Insurance Act of 2012.
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Consistent with its statement of task, Chapter 6 describes alternatives for determining when the premium increases resulting from BW 2012 would make flood insurance unaffordable and describes key design decisions and policy options for creating an assistance program. Chapter 7 discusses policy alternatives that may lower the cost of flood insurance for eligible households.
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BW 2012 increased the emphasis on setting NFIP rates that reflected flood risk, and on charging premiums that would cover claims paid and other related expenses. NATIONAL FLOOD INSURANCE PROGRAM POLICY PRICING AND EFFECTS OF BIGGERT-WATERS 2012 Well-established actuarial principles require that the combination of insurance premiums and other income sources yield revenues that will pay expected future claims and insurance program expenses (costs)
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is a FEMA program that encourages communities to adopt a variety of measures to help reduce flood risks. It allows discounted premiums for some properties when the community adopts one or more NFIP-prescribed flood risk management actions.
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A review of the economics and behavioral sciences literature identified no single strategy that will increase purchase of NFIP policies. • The original NFIP legislation expected NFIP premiums to be priced at reasonable levels to promote voluntary purchase of NFIP policies.
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DECISIONS WHEN DESIGNING ASSISTANCE PROGRAMS TO ENHANCE AFFORDABILITY Both BW 2012 and HFIAA 2014 reflect concerns that NFIP risk-based premiums may be unaffordable for some households. FEMA is directed to review that possibility and suggest policy actions that would make premiums affordable for households that are financially burdened by the cost of flood insurance.
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OPTIONS FOR DELIVERING ASSISTANCE TO ENHANCE FLOOD INSURANCE AFFORDABILITY With passage of BW 2012, Congress asked FEMA to increase rates but at the same time to suggest ways to make premiums affordable through direct assistance programs that are based on ability to pay and means testing. Vouchers in particular were called out for attention.
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These might be particularly important in mitigation related to multi-family properties. Choosing among affordability policy options, alone or in combination, requires an evaluation of their effects not only on premiums for households for which NFIP risk-based premiums create a cost burden but on NFIP net revenues, expenditures from federal general revenues, and takeup rates.
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