No Access
The Pricing of Flood Insurance
https://doi.org/10.1142/S2345737617500014Cited by:23 (Source: Crossref)
Abstract
Despite the availability of flood insurance in the US through the National Flood Insurance Program (NFIP), many homeowners at risk of floods are not insured. The program went deeply into debt after Hurricane Katrina in 2005 and Congress adopted multiple reforms to NFIP rate setting in 2012 and 2014. In response to the ongoing concern about the cost of NFIP policies, as well as multiple misunderstandings about NFIP rates, we simulate NFIP premiums for a sample of homes by constructing a premium calculator based on FEMA rating tables. These simulations highlight several aspects of NFIP rating in need of more attention. First, there are many implicit and explicit cross-subsidies in NFIP pricing, potentially distorting risk information and incentives. Second, NFIP rating is complicated, which can make it difficult for homeowners and untrained agents to evaluate options. Finally, the premiums we present offer insight into the ongoing debate about affordability of flood insurance by highlighting where policies cost the most. FEMA is actively exploring rate reform, which may address some of these concerns.
References
- [2015] What drives households to buy flood insurance? New evidence from Georgia, Ecological Economics, 117: 153–161. Crossref, Google Scholar
-
CBS/AP [2016] As Hurricane Matthew’s damage mounts, many victims don’t have flood insurance, CBS News, 13 October. Google Scholar - [2014] Fix costly errors in flood insurance quotes, Fox Business, 18 March. Google Scholar
- Dixon, L, Clancy N, Bender B, Kofner A, Manheim D and Zakaras L (2013). Flood Insurance in New York City Following Hurriane Sandy. Santa Monica, CA, RAND Corporation. Google Scholar
- Elmore, C (2015). Flood insurance overcharges of $225 add to Florida ‘chaos’, Palm Beach Post, Palm Beach, FL, 17 April. Google Scholar
- FEMA (1998). Managing Floodplain Development Through The National Flood Insurance Program. Washington, DC, Federal Emergency Management Agency, http://www.fema.gov/media-library/assets/documents/6029?id=2108. Google Scholar
- FEMA (2015). National Flood Insruance Program: Report to Congress on Reinsuring NFIP Insurance Risk and Options for Privatizing the NFIP. Washington, DC, Federal Emergency Management Agency, August 13. Google Scholar
- FEMA (2016a). Community Rating System Fact Sheet. Washington, DC, Federal Emergency Management Agency, Federal Insurance and Mitigation Administration, May. Google Scholar
- FEMA (2016b). National Flood Insurance Program Flood Insurance Manual. Washington, DC, US Department of Homeland Security, Federal Emergency Management Agency, http://www.fema.gov/media-library/assets/documents/115549. Google Scholar
- FEMA (2016c). National Flood Insurance Program Specific rating guidelines, Washington, DC, US Department of Homeland Security, Federal Emergency Management Agency, April 16 http://www.fema.gov/media-library-data/1450374017262-8d8a14ee8c48efb5356e9fb5b24ff2a1/SRG_April2016.pdf. Google Scholar
- GAO (2008). Flood Insurance: FEMA’s rate-setting process warrants attention, Washington, D.C., United States Government Accountability Office. Google Scholar
- GAO (2010). Continued actions needed to address financial and operational issues, Washington, DC, United States Government Accountability Office, April 21. Google Scholar
- GAO (2016). Continued progress needed to fully address prior GAO recommendations on rate-setting methods, Washington, DC, United States Government Accountability Office, April 21. Google Scholar
- [2013] Future flood losses in major coastal cities, Nature Climate Change, 3: 802–806. Crossref, Google Scholar
- [2013] Evaluating the effectiveness of local mitigation activities in reducing flood losses, Natural Hazards Review, 14 (4): 229–236. Crossref, Google Scholar
- [2011] Understanding the demand for flood insurance, Natural Hazards Review, 12 (2): 96–110. Crossref, Google Scholar
- .
Revised risk assessments and the insurance industry . In: Balleisen, E., Bennear L, Krawiec K and Wiener J (eds.) Policy Shock: Regulatory Responses to Oil Spills, Nuclear Accidents, and Financial Crashes. Cambridge University Press. (forthcoming). Google Scholar - [2012] Explaining the failure to insure catastrophic risks, The Geneva Papers, 37: 206–227. Google Scholar
- [2015] Examining flood insurance claims in the United States, Journal of Risk and Insurance. https://doi.org/10.1111/jori.12106 Google Scholar
- Kousky, C and Shabman L (2014). Pricing Flood Insurance: How and Why the NFIP Differs from a Private Insurance Company, Washington, DC, Resources for the Future, October. Google Scholar
- [2004] Participation in the National Flood Insurance Program: An empirical analysis for coastal properties, The Journal of Risk and Insurance, 71 (3): 405–420. Crossref, Google Scholar
- [2011] Flood insurance coverage in the coastal zone, Journal of Risk and Insurance, 78 (2): 361–388. Crossref, Google Scholar
- Li, A and Mistich D (2016). In West Virgina flooding is common, but flood insurance is not, WV Public Broadcasting, Charleston, WV, July 12. Google Scholar
- National Research Council (2015). Affordability of National Flood Insurance Premiums: Report 1. Washington, DC: National Academies Press. Google Scholar
- North Carolina Floodplain Mapping Program (2015). National Flood Insurance Program Premiums in North Carolina: Case Study on Data Availability, Modeling and Analysis Supporting Premium and Affordability Discussions, Raleigh, NC, North Carolina Floodplain Mapping Program, North Carolina Emergency Management. Google Scholar
- NPR (2016). Many Louisiana residents struggle to recover without flood insurance. All things considered, August 19. Google Scholar
- O’Neill, E (2014). Union Beach couple gets $33K flood insurance bill after raising home above new federal standards, NJ.com, July 27. Google Scholar
- Sherry, VN (2015). Check your flood insurance policy: $225 overcharge possible, Staten Island Advance, Staten Island, NY, April 9. Google Scholar
- Skumanick, K (2014). Testimony on the National Flood Insurance Crisis, Pennsylvania Association of Realtors, http://www.senatorgeneyaw.com/wp-content/blogs.dir/29/files/2014/09/Kim-SkumanickTestimony.pdf. Google Scholar
- Swift, R (2014). Dickson City homeowners testify about flood insruance woes, The Scranton Times-Tribune Scranton, Pennsylvania, January 28. Google Scholar
- Swiss Re (2005). Innovating to insure the uninsurable. Zurich, Swiss Reinsurance Company, 1 September. Google Scholar
- Tebaldi, C, Strauss BH and Zervas CE (2012). Modelling sea level rise impacts on storm surges along US coasts, Environmental Research Letters, 7: 014032. Google Scholar
- US Department of the Treasury (2015). Report providing an assessment of the current state of the market for natural catastrophe insurance in the United States. Washington, DC, Federal Insurance Office, U.S. Department of the Treasury, September. Google Scholar
