Issue Brief

NFIP Premiums for Single-Family Residential Properties: Today and Tomorrow

Dec 15, 2016 | Carolyn Kousky, Brett Lingle, Leonard A. Shabman

Summary

In order to make the National Flood Insurance Program (NFIP) more financially stable, Congress has passed legislation to adjust pricing practices. Our brief assesses NFIP rate setting and presents premiums for examples of single-family properties.

Key Findings

  • Premiums for a newer primary residence in a 100-year floodplain with $250,000 of building coverage can range, under plausible assumptions, from $380–$590 when the home is 2–4 feet above base flood elevation (BFE) or from $650–$1,890 at BFE.
  • Outside 100-year floodplains, premiums are not based on elevation. Premiums can range from hundreds to a couple thousand dollars, depending on coverage choices and structural aspects of the home.
  • For properties outside the 100-year floodplain with a favorable loss history, low premiums are available; the cost for the maximum building and contents coverage for these policies is only $450–$500.
  • In 2014, only 1 percent of policies were in V zones (100-year floodplains subject to breaking waves of 3 feet or more). For newer homes in this zone, annual premiums are several thousands of dollars, increasing dramatically if the property is below BFE.
  • “Pre-FIRM” rates (for homes built before flood risks were mapped) currently provide savings of thousands of dollars annually to homes below BFE, but are actually more costly to homes above BFE. These discounts are being phased out for all policyholders.
  • The highest premiums are for properties below BFE. If a property is below BFE due to a new map, grandfathering can provide rate protection. For properties above BFE, however, grandfathering may not be preferable.