Reasonable and Risk-Based?

Replacing NFIP Generally Subsidized Rates with a Means-Tested Subsidy

Published in: Southern Economic Journal, Volume 85, Issue 4, pages 1180–1195 (April 2019). doi: 10.1002/soej.12329

Posted on RAND.org on July 22, 2020

by Benjamin M. Miller, Lloyd Dixon, Noreen Clancy

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The National Flood Insurance Program was created to seek two often conflicting goals: (i) shifting risks from federal taxpayers to those who choose to live in flood plains and (ii) ensuring flood insurance is available to everyone at "reasonable" rates. Efforts to accomplish the second goal currently take the form of subsidies based on location and the date a home was constructed. The resulting revenue from subsidized insurance premiums is not sufficient to cover the true cost of flood insurance, and federal taxpayers have paid the difference: $30 billion to date. Based on a detailed survey of households in the high-risk flood zones of New York City (NYC), we find that replacing existing premium subsidies with risk-based prices and a subsidy for low-income housing-burdened households could better meet both goals by ensuring low-income individuals have access to affordable flood insurance while still saving the federal taxpayer up to $183 million per year in NYC alone.

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