The United States’ National Flood Insurance Program (NFIP) has accumulated over $20 billion in debt to the US Treasury since 2005, partly due to discounted premiums on homes in flood‐prone areas. To address this issue, FEMA introduced Risk Rating 2.0 in October 2021, which is able to assess and charge more accurate and equitable rates to homeowners. However, rates must be continually updated to account for increasing flood damage caused by sea level rise and more intense hurricanes due to climate change. This study proposes a strategy to adopt updated premium rates that account for climate change effects and address affordability and risk mitigation issues with a means‐tested voucher program. The strategy is tested in a coastal community, Ortley Beach, NJ, by projecting its future flood risk under sea level rise and storm intensification. Compared with using static rates for all the properties in Ortley Beach, the proposed strategy is shown to reduce the NFIP's potential losses to the community from 2020 to 2050 by half (from $4.6 million to $2.3 million), improve the community's flood resistance, and address affordability concerns. Sensitivity analysis of varying incomes, loan interest rates, and conditions for a voucher indicates that the strategy is feasible and effective under a wide range of scenarios. Thus, the proposed strategy can be applied to various communities along the US coastline as an effective way of updating risk‐based premiums while addressing affordability and resilience concerns.
Flooding causes more damage and severely impacts more people worldwide than any other natural disaster. Flood risk in many parts of the United States is projected to increase due to both continued floodplain development and climate change. Many of our institutions and public policies are not designed to address these changing risk conditions. The practice of grandfathering insurance premiums in the National Flood Insurance Program (NFIP)—allowing an insured to keep a lower rate even when risk has increased—is one such policy. We link a flood hazard model to a flood insurance premium calculator in order to provide illustrative calculations of the possible impact of grandfathering on program revenue and policyholder premiums due to sea level rise for a New York City neighborhood. We conclude by discussing how to preserve the financial soundness of the NFIP while addressing the affordability of insurance in the face of increasing flood risk.
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- 10247356
- Publisher / Repository:
- Wiley-Blackwell
- Date Published:
- Journal Name:
- Risk Analysis
- Volume:
- 41
- Issue:
- 10
- ISSN:
- 0272-4332
- Page Range / eLocation ID:
- p. 1739-1743
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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