Issue Brief

A Discussion of the National Flood Insurance Program

Feb 14, 2017 | Carolyn Kousky

Summary

The National Flood Insurance Program needs to be updated to reflect improvements in our ability to model, communicate, and transfer disaster risk—including radical changes in technology and data. This brief outlines priority reforms for Congress to consider.

Key Findings

  • There is a large flood insurance gap in the United States, with many people exposed to flood risk not covered by flood insurance.
  • The 100-year floodplain boundary, which is central to pricing and regulation under the National Flood Insurance Program, may create a false sense that outside the boundary is “safe” and that all parts within it are equally risky.
  • Property-specific risk information and pricing would be an improvement to the current coarser pricing structure and broad flood risk zones.
  • Information on future flood risk is needed for home purchasers, to better regulate new development and site new infrastructure, particularly for coastal communities where flood risk is likely increasing. This could be provided in non-regulatory maps.
  • As premium discounts are phased out for structures built before flood maps, the riskiest properties will begin to face high rates. Greater resources for mitigating these properties are merited, as is a program to assist low-income policyholders.
  • Grandfathering of lower-risk rates will become increasingly unsustainable and mask the true risk. Consideration should be given to making it a slow glide path to risk based rates and not a permanent discount.