Affordability of National Flood Insurance Program Premiums Report 2 (2016) / Chapter Skim
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Appendix A: Affordability of National Flood Insurance Program Premiums: Report 1 Summary
Appendix A: Affordability of National Flood Insurance Program Premiums: Report 1 Summary
Pages 95-104
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From page 95... ...
That debt was also a motivation for provisions in BW 2012 that directed FEMA to consider actions that had the potential to improve the financial foundation for the program through premium increases that would better reflect flood risks. BW 2012 Section 100236 called for an "affordability study" from FEMA that would include "methods to aid individuals to afford risk-based premiums under the National Flood Insurance Program through targeted 1 Some of the terms used in this report may be unfamiliar to the reader or may have been used in inconsistent ways in writing and testimony about the NFIP through the years.
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From page 96... ...
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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From page 97... ...
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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From page 98... ...
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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From page 99... ...
INSURANCE DEMAND A long-standing objective of the NFIP has been to increase purchases of flood insurance policies. The national flood risk management objective of widespread NFIP purchase was one motivation for keeping NFIP pre iums m reasonable, with the premise that the level of the premium determines the
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From page 100... ...
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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From page 101... ...
This decision is not amenable solely to technical analysis. • To design a program that provides assistance in making flood in surance more affordable to NFIP policyholders, policy makers face several choices, including who will receive assistance, what type of assistance will be provided, how assistance will be provided, how much assistance will be provided, who will pay for assistance, and how an assistance program will be administered.
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From page 102... ...
Proposals for policies that might reduce the burden of premium payments or that might direct mitigation assistance toward households that qualify for assistance have been presented in legislation, in congressional testimony, and in professional literature. The committee reviewed the proposals and concluded the following: • The NFIP can strive for risk-based premiums while addressing af fordability by implementing a combination of policy measures in cluding means-tested mitigation grants, mitigation loans, vouchers, and encouragement of higher premium deductibles.
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From page 103... ...
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. This committee's second report, to be published later in 2015, will suggest analytical protocols that FEMA might use to evaluate affordability policy options.
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