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Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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AFFORDABILITY OF
NATIONAL FLOOD INSURANCE
PROGRAM PREMIUMS

REPORT 1

Committee on the Affordability of
National Flood Insurance Program Premiums

Water Science and Technology Board
Division on Earth and Life Studies

Board on Mathematical Sciences and Their Applications
Division on Engineering and Physical Sciences

Committee on National Statistics
Division on Behavioral and Social Sciences and Education

NATIONAL RESEARCH COUNCIL
                         OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.

www.nap.edu

Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance.

Support for this study was provided by the Federal Emergency Management Agency under contract HSHQDC-11-D-0009/HSFE60-13-J-0025. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the authors and do not necessarily reflect the views of the organizations or agencies that provided support for the project.

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Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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THE NATIONAL ACADEMIES

Advisers to the Nation on Science, Engineering, and Medicine

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences.

The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. C. D. Mote, Jr., is president of the National Academy of Engineering.

The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Victor J. Dzau is president of the Institute of Medicine.

The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. C. D. Mote, Jr., are chair and vice chair, respectively, of the National Research Council.

www.national-academies.org

Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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COMMITTEE ON THE AFFORDABILITY OF NATIONAL
FLOOD INSURANCE PROGRAM PREMIUMS

LEONARD A. SHABMAN (Chair), Resources for the Future, Washington, DC

SUDIPTO BANERJEE, University of California, Los Angeles

JOHN J. BOLAND, Johns Hopkins University, Baltimore, MD

PATRICK L. BROCKETT, University of Texas, Austin

RAYMOND J. BURBY, University of North Carolina, Chapel Hill

SCOTT EDELMAN, AECOM, Greensboro, NC

W. MICHAEL HANEMANN, NAS, Arizona State University, Tempe

CAROLYN KOUSKY, Resources for the Future, Washington, DC

HOWARD C. KUNREUTHER, University of Pennsylvania, Philadelphia

SHIRLEY LASKA, University of New Orleans, New Orleans, LA

DAVID R. MAIDMENT, University of Texas, Austin

DAVID MAURSTAD, OST, Inc., Washington, DC

ALLEN L. SCHIRM, Mathematica Policy Research, Washington, DC

Staff

JEFFREY JACOBS, Study Director, and Director, Water Science and Technology Board

CONSTANCE F. CITRO, Senior Board Director, Committee on National Statistics

SCOTT T. WEIDMAN, Director, Board on Mathematical Sciences and Their Applications

MICHAEL J. STOEVER, Research Associate, Water Science and Technology Board

ANITA A. HALL, Senior Program Associate, Water Science and Technology Board

NORMAN GROSSBLATT, Senior Editor

Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
×

WATER SCIENCE AND TECHNOLOGY BOARD

GEORGE M. HORNBERGER (Chair), NAE, Vanderbilt University, Nashville, TN

EDWARD J. BOUWER, Johns Hopkins University, Baltimore, MD

YU-PING CHIN, Ohio State University, Columbus

DAVID A. DZOMBAK, NAE, Carnegie Mellon University, Pittsburgh, PA

M. SIOBHAN FENNESSY, Kenyon College, Gambier, OH

BEN GRUMBLES, Maryland Department of the Environment, Baltimore

GEORGE R. HALLBERG, The Cadmus Group, Watertown, MA

ARTURO A. KELLER, University of California, Santa Barbara

CATHERINE L. KLING, NAS, Iowa State University, Ames

DEBRA S. KNOPMAN, RAND Corporation, Arlington, VA

LARRY LARSON, Association of State Floodplain Managers, Madison, WI

DINAH LOUDA, Veolia Institute, Paris, France

RITA P. MAGUIRE, Maguire & Pearce PLLC, Phoenix, AZ

DAVID I. MAURSTAD, OST, Inc., Washington, DC

STEPHEN POLASKY, NAS, University of Miunnesota, St. Paul

ROBERT SIMONDS, The Robert Simonds Company, Culver City, CA

FRANK H. STILLINGER, NAS, Princeton University, Princeton, NJ

MARYLYNN V. YATES, University of California, Riverside

JAMES W. ZIGLAR, SR., Van Ness Feldman, Washington, DC

Staff

JEFFREY JACOBS, Director

LAURA J. EHLERS, Senior Program Officer

STEPHANIE E. JOHNSON, Senior Program Officer

ED J. DUNNE, Program Officer

M. JEANNE AQUILINO, Financial and Administrative Associate

MICHAEL J. STOEVER, Research Associate

ANITA A. HALL, Senior Program Associate

BRENDAN R. MCGOVERN, Senior Program Assistant

Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
×

BOARD ON MATHEMATICAL SCIENCES
AND THEIR APPLICATIONS

DONALD G. SAARI (Chair), University of California, Irvine

DOUGLAS N. ARNOLD, University of Minnesota, Minneapolis

JOHN B. BELL, E.O. Lawrence Berkeley National Laboratory, Berkeley

VICKI M. BIER, University of Wisconsin, Madison

JOHN R. BIRGE, The University of Chicago, Chicago, IL

L. ANTHONY COX, JR, Cox Associates, Denver, CO

MARK L. GREEN, University of California, Los Angeles

BRYNA KRA, Northwestern University, Evanston, IL

JOSEPH A. LANGSAM, University of Maryland, College Park

ANDREW W. LO, Massachusetts Institute of Technology, Cambridge, MA

DAVID MAIER, Portland State University, Portland, OR

WILLIAM A. MASSEY, Princeton University, Princeton, NJ

JUAN C. MEZA, University of California, Merced

CLAUDIA NEUHAUSER, University of Minnesota, Minneapolis

FRED S. ROBERTS, Rutgers University, Piscataway, NJ

GUILLERMO SAPIRO, Duke University, Durham, NC

CARL P. SIMON, University of Michigan, Ann Arbor

KATEPALLI SREENIVASAN, New York University, New York, NY

ELIZABETH A. THOMPSON, University of Washington, Seattle

Staff

SCOTT T. WEIDMAN, Director

NEAL D. GLASSMAN, Senior Program Officer

MICHELLE K. SCHWALBE, Program Officer

RODNEY HOWARD, Administrative Assistant

Page viii Cite
Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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COMMITTEE ON NATIONAL STATISTICS

LAWRENCE D. BROWN (Chair), University of Pennsylvania, Philadelphia

JOHN M. ABOWD, Cornell University, Ithaca, NY

MARY ELLEN BOCK, Purdue University, West Lafayette, IN

DAVID CARD, University of California, Berkeley

MICHAEL E. CHERNEW, Harvard University, Boston, MA

DON A. DILLMAN, Washington State University, Pullman

CONSTANTINE GATSONIS, Brown University, Providence, RI

JAMES S. HOUSE, University of Michigan, Ann Arbor

MICHAEL HOUT, University of California, Berkeley

SALLIE KELLER, Virginia Polytechnic Institute and State University, Blacksburg

LISA LYNCH, Brandeis University, Waltham, MA

THOMAS L. MESENBOURG, Retired, Formerly US Census Bureau

SARAH M. NUSSER, Iowa State University, Ames

COLM A. O’MUIRCHEARTAIGH, The University of Chicago, Chicago, IL

RUTH D. PETERSON, The Ohio State University, Columbus

EDWARD H. SHORTLIFFE, Columbia University, New York, NY, and Arizona State University, Tempe

Staff

CONSTANCE F. CITRO, Director

MICHAEL L. COHEN, Senior Program Officer

DANIEL L. CORK, Senior Program Officer

KAYE H. FEALING, Senior Program Officer

MARY KASPER, Senior Program Assistant

HERMANN HABERMANN, Senior Program Officer

CAROL C. HOUSE, Senior Program Officer

NANCY J. KIRKENDALL, Senior Program Officer

CHRISTOPHER D. MACKIE, Senior Program Officer

KRISZTINA MARTON, Senior Program Officer

RICHARD PAIN, Senior Program Officer

EDWARD J. SPAR, Senior Program Officer

DANIEL WEINBERG, Senior Program Officer

GOOLOO WUNDERLICH, Senior Program Officer

ESHA SINHA, Associate Program Officer

Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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ANTHONY S. MANN, Program Associate

MICHAEL J. SIRI, Program Associate

JACQUI SOVDE, Program Associate

JULIA KISA-SHAKEER, Financial Associate

AGNES E. GASKIN, Administrative Assistant

Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
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Acknowledgments

This report was reviewed in draft form by individuals chosen for their breadth of perspectives and technical expertise in accordance with procedures approved by the National Academies Report Review Committee. The purpose of the independent review was to provide candid and critical comments to assist the institution in ensuring that its published report is scientifically credible and meets institutional standards of objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process.

We thank the following for their review of the report: Chad Berginnis, The Association of State Floodplain Managers, Madison, WI; Marianne Bitler, University of California, Irvine; Lloyd Dixon, RAND Corporation, Santa Monica, CA; Leslie Durham, Alabama Office of Water Resources, Montgomery; Gerald Galloway, NAE, University of Maryland, College Park; Katherine Greig, New York City Mayor’s Office of Recovery and Resiliency, New York, NY; Roger Kasperson, NAS, Clark University, Worcester, MA; Robert Litan, Kauffman Foundation, Wichita KS, and the Brookings Institution, Washington, DC; Erwann Michel-Kerjan, University of Pennsylvania, Philadelphia; Earthea Nance, Texas Southern University, Houston; Franklin Nutter, Reinsurance Association of America, Washington, DC; and Doug Plasencia, Michael Baker Jr. Inc., Phoenix, AZ.

Although the reviewers listed above provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of the report was overseen by David Moreau, Univer-

Suggested Citation:"Front Matter." National Research Council. 2015. Affordability of National Flood Insurance Program Premiums: Report 1. Washington, DC: The National Academies Press. doi: 10.17226/21709.
×

sity of North Carolina, Chapel Hill; and Michael Goodchild, University of California, Santa Barbara. Appointed by the National Research Council, they were responsible for ensuring that an independent examination of the report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of the report rests with the author committee and the National Research Council.

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The National Flood Insurance Program (NFIP) is housed within the Federal Emergency Management Agency (FEMA) and offers insurance policies that are marketed and sold through private insurers, but with the risks borne by the U.S. federal government. NFIP's primary goals are to ensure affordable insurance premiums, secure widespread community participation in the program, and earn premium and fee income that covers claims paid and program expenses over time. In July 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform and Modernization Act (Biggert-Waters 2012), designed to move toward an insurance program with NFIP risk-based premiums that better reflected expected losses from floods at insured properties. This eliminated policies priced at what the NFIP called "pre-FIRM subsidized" and "grandfathered." As Biggert-Waters 2012 went into effect, constituents from multiple communities expressed concerns about the elimination of lower rate classes, arguing that it created a financial burden on policy holders. In response to these concerns Congress passed The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA 2014). The 2014 legislation changed the process by which pre-FIRM subsidized premiums for primary residences would be removed and reinstated grandfathering. As part of that legislation, FEMA must report back to Congress with a draft affordability framework.

Affordability of National Flood Insurance Program Premiums: Report 1 is the first part of a two-part study to provide input as FEMA prepares their draft affordability framework. This report discusses the underlying definitions and methods for an affordability framework and the affordability concept and applications. Affordability of National Flood Insurance Program Premiums gives an overview of the demand for insurance and the history of the NFIP premium setting. The report then describes alternatives for determining when the premium increases resulting from Biggert-Waters 2012 would make flood insurance unaffordable.

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