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Research Questions

  1. What did flood insurance coverage in New York City look like before Hurricane Sandy, and what effect has Hurricane Sandy had on flood insurance markets?
  2. What are the consequences for New York City of changes in the National Flood Insurance Program (NFIP) and updates in the flood-risk maps for the city?
  3. How can policymakers help people in high-risk areas of New York City deal with major increases in insurance premiums?
  4. What key data should be collected, and what analyses should be done to evaluate potential responses?

When Hurricane Sandy struck New York City on October 29, 2012, it caused flooding in all five boroughs. The storm surge reached nearly 88,700 buildings, more than 300,000 housing units, and 23,400 businesses. The federal government offers flood insurance through the National Flood Insurance Program (NFIP), a program administered by the Federal Emergency Management Agency (FEMA) since 1968, a time when affordable private insurance was difficult to find. This insurance is mandated for structures located in high-risk areas (the 100-year floodplain) if there is a federally backed mortgage on the property and is subsidized for structures that predate FEMA's first Flood Insurance Rate Map (FIRM) for the area. However, many residential structures in high-risk areas do not carry such policies. Two major changes will affect the cost of NFIP policies for structures in New York City: (1) an update of the maps that define the flood risk areas in New York and (2) legally required reform to the NFIP. Flood insurance plays an important role in addressing and managing flood risk posed. Insurance payments can help households and businesses recover from an event and get the economy moving again. When properly priced, insurance premiums can also provide appropriate incentives to avoid or mitigate risk. This report examines dimensions of the changing flood insurance environment in New York City and explores the consequences for the city's residents and businesses.

Key Findings

Take-Up Rates for Flood Insurance in the High-Risk Areas of New York City Are Moderate

  • Approximately 3.6 percent of New York City structures are in the high-risk areas defined by the 2007 flood map, and most of the structures (72 percent) are homes for one to four families. Approximately 55 percent of the one- to four-family homes in the high-risk areas had federal flood insurance on the eve of Hurricane Sandy; approximately three-quarters of one- to four-family homes in the high-risk areas on the 2007 map are subject to the mandatory purchase requirement. Of these, about two-thirds have flood coverage. Among homeowners not required to buy coverage, the take-up rate is only approximately 20 percent.

Hurricane Sandy Revealed Gaps in the Flood Insurance System

  • The biggest gaps were limited basement coverage, lack of coverage for additional living expenses incurred because of flooding, lack of coverage for earth movement that results from flooding, lack of coverage for business interruption or business expenses, inadequate coverage for mixed-use buildings, and varying coverage for street and area closures imposed by civil authorities.

Changes in the National Flood Insurance Program Will Affect New Yorkers

  • The Federal Emergency Management Agency issued preliminary work maps for the new flood insurance rate map in June 2013, and the new map is expected to go into effect in 2015. Approximately 32,000 structures that were outside the 2007 high-risk areas and not built to floodplain standards will now be in New York City's high-risk flood zones.
  • Flood insurance premiums will increase. The increase could well rise $5,000 to $10,000 for structures that are outside the high-risk areas of the 2007 map but in the high-risk areas of the updated map that is projected to take effect in 2015. These increases could reduce property values and pose hardships for low-income households.


  • Policymakers are considering a range of options that could provide residents with some relief from the cost of insurance premiums. These include risk-mitigation measures, such as dunes, levees, and building retrofits, and programs that provide financial assistance to low-income households.
  • New York City should work with the Federal Emergency Management Agency to collect data on structure elevations and other structure characteristics in the high-risk zones in order to better project likely premium increases and the types of mitigation measures that would be most effective to reduce premium. To design and evaluate strategies for addressing affordability in New York City, more information is also needed on the relationship between National Flood Insurance Program premiums and household income.
  • New York City should also work with FEMA to make sure that the benefits of risk-mitigation measures are properly reflected in NFIP rates, and with FEMA and the New York State Department of Financial Services to increase take-up rates. Finally, New York City should consider a multilayered approach to mitigation and protection. A suite of mitigation tools and incentives should be considered based on specific physical and socioeconomic attributes of New York City neighborhoods. These might include low-interest loans or grants to individuals to fund mitigation efforts or larger-scale coastal protection measures to fortify whole neighborhoods. They might also include changes in land use that remove structures from some areas when property owners are willing to sell.

The research described in this report was sponsored by the New York City Mayor's Office of Long-Term Planning and Sustainability and conducted in the Center for Catastrophic Risk Management within RAND Justice, Infrastructure, and Environment.

This report is part of the RAND research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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