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Affordability of National Flood Insurance Program Premiums: Report 2 (2016)

Chapter: Appendix I: Task Statements for Affordability of National Flood Insurance Program Premiums - Report 1 and Report 2

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Suggested Citation:"Appendix I: Task Statements for Affordability of National Flood Insurance Program Premiums - Report 1 and Report 2." 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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Appendix I

Task Statements for Affordability of National Flood Insurance Program Premiums—Report 1 and Report 2

STATEMENT OF TASK

The Federal Insurance and Mitigation Administration (FIMA) is a component of the Department of Homeland Security (DHS), Federal Emergency Management Agency (FEMA), which operates the National Flood Insurance Program (NFIP). On March 21, 2014, President Obama signed the Homeowner Flood Insurance Affordability Act (HFIAA) of 2014 into law. This law repeals and modifies certain provisions of the 2012 Biggert-Waters Flood Insurance Reform Act, and makes additional program changes to other aspects of the program not covered by that Act. One modification regards a study being conducted by the National Research Council (NRC) of the National Academy of Sciences (NAS). HFIAA requires the submission of the Affordability Study by the FEMA Administrator 18 months from enactment of the Act.

FEMA has asked the NAS to provide two reports as part of the NFIP Affordability Study.

The first report, due in February 2015, will discuss the underlying definitions and methods for an affordability framework and describe the affordability concept and applications, and program policy options.

The second report, due in September 2015, will propose alternative approaches for a national evaluation of affordability program policy options, based in part on lessons gleaned from a proof-of-concept pilot study to be guided by the NRC committee.

An ad hoc committee under the auspices of the National Research Council will prepare both reports according to the following statements of task:

Suggested Citation:"Appendix I: Task Statements for Affordability of National Flood Insurance Program Premiums - Report 1 and Report 2." 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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First Report

The first report will discuss the underlying definitions for an affordability framework and describe the affordability concept and applications and program policy options.

The first report shall discuss

  • Methods for establishing an affordability framework, including means-tested vouchers, for the National Flood Insurance Program;
  • Appropriate and necessary assumptions and definitions, including “affordability” and “full risk-based premiums.”

Second Report

The second report will propose alternative approaches for a national evaluation of affordability program policy options. The second report will include lessons for the design of a national study from a proof-of-concept pilot study.

The second report shall discuss

  • Data issues such as needs, availability, quantity, and quality;
  • Appropriate analytical methods and related considerations, including models, computing software, and geographic areas to be analyzed;
  • A proof-of-concept pilot analysis to be subcontracted as part of the study. This analysis will apply different methods for conducting a flood insurance affordability analysis for a state (North Carolina) in which data on elevations of structures and hydrologic flood hazards are readily available. This analysis will inform the committee’s deliberations and findings regarding the possibilities for a national-level flood insurance affordability study, for which these data on elevations and flood hazards are less readily available;
  • National implications from the proof-of-concept pilot results including, but not limited to, possible impacts on participation rates (the analytical work for the proof-of-concept pilot may be carried out by the NRC directly or using subcontractors as necessary).
Suggested Citation:"Appendix I: Task Statements for Affordability of National Flood Insurance Program Premiums - Report 1 and Report 2." 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.
×
Page 133
Suggested Citation:"Appendix I: Task Statements for Affordability of National Flood Insurance Program Premiums - Report 1 and Report 2." 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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