RAND Gulf States Policy Institute Analysis of the National Flood Insurance Program and Proposed Reforms

RAND Work Provides Insight Into Reforms Proposed by the National Flood Insurance Reform and Modernization Act

The National Flood Insurance Program (NFIP), a part of the U.S. Federal Emergency Management Agency (FEMA), writes the vast majority of flood insurance on residential properties in the United States. The authorizing legislation passed Congress and was signed into law in July 2012, although some members of Congress are already calling for more changes. RAND has completed studies in four key areas that offer insight into the program.

Area 1: Premiums that more accurately reflect the true risk of flooding

RAND has studied flood risks in coastal Louisiana, including risk behind levees. RAND work assessing the demand for flood insurance also provides insights into potential program changes that would increase participation.

Relevant RAND work:

• The National Flood Insurance Program’s Market Penetration Rate: Estimates and Policy Implications
• Evaluating National Flood Insurance
• Managing New Orleans Flood Risk in an Uncertain Future Using Non-Structural Risk Mitigation
• Commercial Wind Insurance in the Gulf States: Developments Since Hurricane Katrina and Challenges Moving Forward

Area 2: Incentives to reduce the vulnerability of households and businesses to flood risk while considering the affordability of the program

RAND has examined the consequences of phasing out several categories of subsidies and promoting non-structural mitigation at the household level.

Relevant RAND work:

• Reducing Future Flood Damage in New Orleans Through Home Elevation and Land Use Changes
• Managing New Orleans Flood Risk in an Uncertain Future Using Non-Structural Risk Mitigation
• Expanding Coverage to the Uninsured of Louisiana

Area 3: Use of private reinsurance by the NFIP to reduce taxpayer risks

RAND has assessed the advantages and disadvantages of greater private sector involvement in catastrophic insurance markets and the consequences of federal loan guarantees on the amount of reinsurance required by state organizations that provide earthquake insurance.

Relevant RAND work:

• Earthquake Insurance and Disaster Assistance: The Effect of Catastrophe Obligation Guarantees on Federal Disaster-Assistance Expenditures in California
• Residential Insurance on the US Gulf Coast in the Aftermath of Hurricane Katrina: A Framework for Evaluating Potential Reforms
• The Lender-Placed Flood Insurance Market for Residential Properties
• Private Insurers Play a Limited, but Key, Role in Underwriting Residential Flood Insurance

Area 4: Solvency of the National Flood Insurance Program

RAND has addressed topics relevant to reform that could make the program self-supporting, including expansion of the mandatory purchase requirement and proposing objectives for a well-functioning flood insurance market.

Relevant RAND work:

• Call for Reform in the Residential Insurance Market after Hurricane Katrina
• Residential Insurance on the U.S. Gulf Coast in the Aftermath of Hurricane Katrina: A Framework for Evaluating Potential Reforms
• The Lender-Placed Flood Insurance Market for Residential Properties
• Private Insurers Play a Limited, but Key, Role in Underwriting Residential Flood Insurance