Discussion Paper

Financing Flood Losses: A Discussion of the National Flood Insurance Program

Feb 14, 2017 | Carolyn Kousky

Summary

This paper analyzes five aspects of the National Flood Insurance Program and provides suggestions for reform: (1) risk modeling and communication; (2) the roles of the public and private sector; (3) take-up rates; (4) incentives for risk reduction; and (5) rate setting and financing catastrophic losses.

Abstract

The National Flood Insurance Program (NFIP), housed in the Federal Emergency Management Agency (FEMA), has been providing flood insurance to households and businesses for almost 50 years. To inform the policy discussion leading up to reauthorization, this paper analyzes five aspects of the NFIP: (1) risk modeling and risk communication; (2) the roles of the public and private sector; (3) take-up rates; (4) incentives for risk reduction; and (5) rate setting and the financing of catastrophic flood events. Suggestions for reform are discussed.