Addressing Affordability in the National Flood Insurance Program

Abstract

With respect to the pricing of insurance, there is often tension between setting premiums that reflect risk and dealing with equity/affordability issues. The National Flood Insurance Program in the United States has recently shifted toward elimination of certain premium discounts which has raised concerns of affordability of coverage for homeowners. We examine these concerns through a case study of Ocean County, New Jersey, an area heavily damaged by Hurricane Sandy. We argue that the NFIP must address affordability, but that this should not be done through discounted premiums. Instead, we propose a means-tested insurance voucher program, coupled with a loan program for investments in hazard mitigation.

Keywords: NFIP, Biggert–Waters, flood, insurance, means-tested vouchers, hazard mitigation, New Jersey, hurricane, Sandy

JEL Classification: G22, D81, H2, H53, Q54