Tying the cost of flood insurance to the level of risk

Two new reports from the National Research Council look at the issue of tying the cost of flood insurance to the level of risk associated with the structures being insured.

It turns out about 1/5 of the 5.5 million policies issued under the National Flood Insurance Program are below the base flood elevation and thus have higher risks.  "Tying Flood Insurance to Flood Risk for Low-Lying Structures in the Floodplains studies the pricing of negatively elevated structures in the NFIP. This report review current NFIP methods for calculating risk-based premiums for these structures, including risk analysis, flood maps, and engineering data. The report then evaluates alternative approaches for calculating risk-based premiums and discusses engineering hydrologic and property assessment data needs to implement full risk-based premiums. The findings and conclusions of this report will help to improve the accuracy and precision of loss estimates for negatively elevated structures, which in turn will increase the credibility, fairness, and transparency of premiums for policyholders."

The second report addresses the consequences of Congressional action in 2012 that requires FEMA to move the NFIP t"oward an insurance program with NFIP risk-based premiums that better reflected expected losses from floods at insured properties."   "Constituents from multiple communities expressed concerns about the elimination of lower rate classes, arguing that it created a financial burden on policy holders."

The report describes alternatives for determining when the premium increases resulting from the 2012 law would make flood insurance unaffordable.