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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

AFFORDABILITY OF

NATIONAL FLOOD INSURANCE
PROGRAM PREMIUMS

REPORT 2

Committee on 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

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THE NATIONAL ACADEMIES PRESS

Washington, DC

www.nap.edu

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

THE NATIONAL ACADEMIES PRESS     500 Fifth Street, NW     Washington, DC 20001

This activity was supported by the Federal Emergency Management Agency Contract Number HSHQDC-11-D-0009/HSFE60-13-J-0025. Any opinions, findings, conclusions, or recommendations expressed in this publication do not necessarily reflect the views of any organization or agency that provided support for the project.

International Standard Book Number-13: 978-0-309-38077-5
International Standard Book Number-10: 0-309-38077-4
DOI: 10.17226/21848

Additional copies of this report are available for sale from the National Academies Press, 500 Fifth Street NW, Keck 360, Washington, DC 20001; (800) 624-6242 or (202) 334-3313; http://www.nap.edu.

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Copyright 2016 by the National Academy of Sciences. All rights reserved.

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Suggested citation: National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums—Report 2. Washington, DC: The National Academies Press.

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

image

The National Academy of Sciences was established in 1863 by an Act of Congress, signed by President Lincoln, as a private, nongovernmental institution to advise the nation on issues related to science and technology. Members are elected by their peers for outstanding contributions to research. Dr. Ralph J. Cicerone is president.

The National Academy of Engineering was established in 1964 under the charter of the National Academy of Sciences to bring the practices of engineering to advising the nation. Members are elected by their peers for extraordinary contributions to engineering. Dr. C. D. Mote, Jr., is president.

The National Academy of Medicine (formerly the Institute of Medicine) was established in 1970 under the charter of the National Academy of Sciences to advise the nation on medical and health issues. Members are elected by their peers for distinguished contributions to medicine and health. Dr. Victor J. Dzau is president.

The three Academies work together as the National Academies of Sciences, Engineering, and Medicine to provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions. The Academies also encourage education and research, recognize outstanding contributions to knowledge, and increase public understanding in matters of science, engineering, and medicine.

Learn more about the National Academies of Sciences, Engineering, and Medicine at www.national-academies.org.

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

COMMITTEE ON AFFORDABILITY OF
NATIONAL FLOOD INSURANCE PREMIUMS

LEONARD A. SHABMAN, Chair, Resources for the Future, Washington, D.C.

SUDIPTO BANERJEE, University of California, Los Angeles

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

PATRICK L. BROCKETT, University of Texas, Austin

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

SCOTT EDELMAN, AECOM, Greensboro, North Carolina

W. MICHAEL HANEMANN, Arizona State University, Tempe

CAROLYN KOUSKY, Resources for the Future, Washington, D.C.

HOWARD C. KUNREUTHER, University of Pennsylvania, Philadelphia

SHIRLEY LASKA, University of New Orleans, New Orleans, Louisiana

DAVID R. MAIDMENT, University of Texas, Austin

DAVID MAURSTAD, OST, Inc., Washington, D.C.

ALLEN L. SCHIRM, Mathematica Policy Research, Washington, D.C.

Staff

ED J. DUNNE, Study 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

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

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

WATER SCIENCE AND TECHNOLOGY BOARD

GEORGE M. HORNBERGER, Chair, Vanderbilt University, Nashville, Tennessee

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

DAVID A. DZOMBAK, Carnegie Mellon University, Pittsburgh, Pennsylvania

M. SIOBHAN FENNESSY, Kenyon College, Gambier, Ohio

BEN GRUMBLES, Maryland Department of the Environment, Baltimore

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

ARTURO A. KELLER, University of California, Santa Barbara

CATHERINE L. KLING, Iowa State University, Ames

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

DINAH LOUDA, Veolia Institute, Paris, France

DAVID I. MAURSTAD, OST, Inc., Washington, D.C.

STEPHEN POLASKY, University of Minnesota, St. Paul

MARYLYNN V. YATES, University of California, Riverside

JAMES W. ZIGLAR, SR., Van Ness Feldman, Washington, D.C.

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 Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

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, California

VICKI M. BIER, University of Wisconsin, Madison

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

RONALD R. COIFMAN, Yale University, New Haven, Connecticut

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

MARK L. GREEN, University of California, Los Angeles

PATRICIA A. JACOBS, Naval Postgraduate School, Monterey, California

BRYNA KRA, Northwestern University, Evanston, Illinois

JOSEPH A. LANGSAM, University of Maryland, College Park

SIMON A. LEVIN, Princeton University, Princeton, New Jersey

ANDREW W. LO, Massachusetts Institute of Technology, Cambridge

DAVID MAIER, Portland State University, Portland, Oregon

WILLIAM A. MASSEY, Princeton University, Princeton, New Jersey

JUAN C. MEZA, University of California, Merced

FRED S. ROBERTS, Rutgers University, Piscataway, New Jersey

GUILLERMO SAPIRO, Duke University, Durham, North Carolina

CARL P. SIMON, University of Michigan, Ann Arbor

KATEPALLI SREENIVASAN, New York University, New York, New York

ELIZABETH A. THOMPSON, University of Washington, Seattle

Staff

SCOTT T. WEIDMAN, Director

NEAL D. GLASSMAN, Senior Program Officer

MICHELLE K. SCHWALBE, Program Officer

BETH DOLAN, Financial Associate

RODNEY HOWARD, Administrative Assistant

Page viii Cite
Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

COMMITTEE ON NATIONAL STATISTICS

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

JOHN M. ABOWD, Cornell University, Ithaca, New York

MICHAEL HOUT, New York University, New York

KAREN KAFADAR, Indiana University, Bloomingdale

SALLIE KELLER, Science and Technology Policy Institute, Washington, DC

LISA LYNCH, Brandeis University, Waltham, Massachusetts

SALLY C. MORTON, University of Pittsburgh, Pittsburgh, Pennsylvania

JOSEPH NEWHOUSE, Harvard University, Cambridge, Massachusetts

SAMUEL H. PRESTON, University of Pennsylvania, Philadelphia

HAL S. STERN, University of California, Irvine

ROGER TOURANGEAU, University of Maryland, College Park, and University of Michigan, Emeritus

ALAN ZASLAVSKY, Harvard Medical School, Boston, Massachusetts

Staff

CONSTANCE F. CITRO, Director

MICHAEL L. COHEN, Senior Program Officer

DANIEL L. CORK, Senior Program Officer

AGNES E. GASKIN, Administrative Assistant

HERMANN HABERMANN, Senior Program Officer

BRIAN HARRIS-KOJETIN, Deputy Director

CAROL C. HOUSE, Senior Program Officer

MARY KASPER, Senior Program Assistant

NANCY J. KIRKENDALL, Senior Program Officer

JULIA KISA-SHAKEER, Financial Associate

EILEEN LEFURGY, Program Coordinator

CHRISTOPHER D. MACKIE, Senior Program Officer

ANTHONY S. MANN, Program Associate

KRISZTINA MARTON, Senior Program Officer

GEORGE SCHOEFFEL, Research Assistant

ESHA SINHA, Associate Program Officer

MICHAEL J. SIRI, Program Associate

CYNTHIA THOMAS, Senior Program Officer

GLENN WHITE, Senior Program Officer

JORDYN WHITE, Program Officer

GOOLOO WUNDERLICH, Senior Program Officer

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

Acknowledgments

The report was reviewed in draft form by individuals chosen for their breadth of perspectives and technical expertise in accordance with the procedures approved by the National Academies’ Report Review Committee. The purpose of this independent review was to provide candid and critical comments to assist the institution in ensuring that its published report is scientifically credible and that it meets institutional standards for 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 wish to thank the following individuals for their review of this report: Kenneth J. Arrow, National Academy of Sciences/National Academy of Medicine, Stanford University; Bruce Bender, Bender Consulting Services, Inc., Phoenix, AZ; Chad Berginnis, The Association of State Floodplain Managers, Madison, WI; Lawrence D. Brown, University of Pennsylvania, Philadelphia; Lloyd Dixon, RAND Corporation, Santa Monica, CA; Gerald Galloway, National Academy of Engineering, University of Maryland, College Park; Earthea Nance, Texas Southern University, Houston, TX; and Doug Plasencia, Michael Baker Jr. Inc., Phoenix, AZ.

Although the reviewers listed above have 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 this report was overseen by Michael Goodchild, University of California, Santa Barbara, and David Moreau, University of North Carolina, Chapel Hill. Appointed by the National Research Council (NRC), they were responsible for making certain that an independent

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the NRC.

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

Preface

The National Flood Insurance Program (NFIP) was created by Congress in 1968 and over the years an uncounted number of studies and reports have reviewed the program’s structure and operations, often making recommendations for reform. Many, but not all, of these reports were made at the request of Congress. The reports of this committee were prepared in response to a congressional request in the Biggert-Waters Flood Insurance Reform Act of 2012 (BW 2012).

BW 2012, Section 100236, mandated that the Federal Emergency Management Agency (FEMA) conduct a study in cooperation with the National Academy of Sciences (NAS) that would “compare the costs of a program of risk-based rates and means-tested assistance to the current system of subsidized flood insurance rates and federally funded disaster relief for people without coverage.” This came to be known as the “affordability study” as a shorthand reference.

In response, the Water Science and Technology Board in the Division on Earth and Life Studies at NAS, in collaboration with the Board on Mathematical Sciences and their Applications, and the Committee on National Statistics, convened the committee on Affordability of National Flood Insurance Program Premiums. The committee members for both reports included persons who collectively brought expertise in insurance, economics, floodplain management, national flood and disaster science and policy, mapping and spatial statistics, and risk perception and communication to the work of the committee.

To fulfill the mandate of BW 2012, FEMA and NAS agreed to a plan of work to produce two reports. The first report, titled “Affordability of

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

National Flood Insurance Program Premiums—Report 1,” described policy options and decisions to be made for FEMA’s consideration as it formulates affordability policy alternatives for consideration by Congress. The first report was publicly released for prepublication on March 26, 2015. A second report focused on how FEMA might develop analytical capacity and databases needed to evaluate affordability policy alternatives. The committee was not tasked to complete such a study.

The committee process for preparing the two reports began in late 2013. The committee met five times during 2014 and 2015—January 2014, March 2014, July 2014, November 2014, and May 2015. The first four meetings were held in Washington, D.C., and the last meeting was held in Irvine, California. The first three meetings included guest presentations and we thank the many individuals who presented to the committee and provided reference materials. We list these in Appendix D of Report 1; the latter two meetings were mostly closed committee meetings.

In addition to those who presented, the committee recognizes three specific contributions. We thank Susan Phelps, as well as her employer AECOM, for her helpful contributions in working with the NFIP policy database and in preparing numerous maps and tables for consideration by the committee, many of which were not included in this final report.

The content of the second report drew heavily from the results of the proof-of-concept report that will be published as the North Carolina Floodplain Mapping Program. John Dorman, Program Director, and his staff provided a draft of the report to the committee and were responsive to requests for further explanations and clarifications of the report content.

We especially thank Andy Neal from FEMA for helping the committee understand the details of the NFIP program and for his timely, comprehensive, and enlightening replies to questions from the committee.

Through meetings, phone calls, and email exchanges each committee member has enthusiastically shared their expertise and knowledge and as a result has made valuable contributions to the report. I owe them all my gratitude. I would especially like to thank Dr. Allen Schirm from Mathematica Policy Research. Allen is an expert in assistance program design and microsimulation analysis. These topics became central to our committee’s work and we relied upon Allen’s advice and knowledge to a much greater extent than we, and maybe he, had expected. Allen’s commitment to the project and spirit of collegiality were crucial to the successful completion of our reports.

Finally, I want to thank particular NAS staff. Dr. Connie Citro prepared essential text that appears in the second report. Dr. Jeffrey Jacobs served as study director for the first report and Dr. Ed Dunne served as study director

Page xiii Cite
Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
×

for the second. Their attention to keeping the committee focused on its task and moving our reports to completion is truly appreciated.

Leonard Shabman, Chair
Committee on the Affordability of National
Flood Insurance Program Premiums

Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2016. Affordability of National Flood Insurance Program Premiums: Report 2. Washington, DC: The National Academies Press. doi: 10.17226/21848.
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When Congress authorized the National Flood Insurance Program (NFIP) in 1968, it intended for the program to encourage community initiatives in flood risk management, charge insurance premiums consistent with actuarial pricing principles, and encourage the purchase of flood insurance by owners of flood prone properties, in part, by offering affordable premiums. The NFIP has been reauthorized many times since 1968, most recently with the Biggert-Waters Flood Insurance Reform Act of 2012 (BW 2012). In this most recent reauthorization, Congress placed a particular emphasis on setting flood insurance premiums following actuarial pricing principles, which was motivated by a desire to ensure future revenues were adequate to pay claims and administrative expenses. BW 2012 was designed to move the NFIP towards risk-based premiums for all flood insurance policies. The result was to be increased premiums for some policyholders that had been paying less than NFIP risk-based premiums and to possibly increase premiums for all policyholders.

Recognition of this possibility and concern for the affordability of flood insurance is reflected in sections of the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA 2014). These sections called on FEMA to propose a draft affordability framework for the NFIP after completing an analysis of the efforts of possible programs for offering “means-tested assistance” to policyholders for whom higher rates may not be affordable.

BW 2012 and HFIAA 2014 mandated that FEMA conduct a study, in cooperation with the National Academies of Sciences, Engineering, and Medicine, which would compare the costs of a program of risk-based rates and means-tested assistance to the current system of subsidized flood insurance rates and federally funded disaster relief for people without coverage. Production of two reports was agreed upon to fulfill this mandate. This second report proposes alternative approaches for a national evaluation of affordability program policy options and includes lessons for the design of a national study from a proof-of-concept pilot study.

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