Jesse D. Gourevitch and Carolyn Kousky of the Environmental Defense Fund and Max Snyder of the University of California, Berkeley published a new research article, “Effects of Risk-based Pricing Reform on Flood Insurance Uptake,” in the Journal of Catastrophe Risk and Resilience.

The article’s key findings were that:

• A recent reform to the National Flood Insurance Program’s pricing methodology, known as Risk Rating 2.0, has caused substantial premium increases for many policyholders.
• Risk Rating 2.0 has caused a 11 – 39% decline in new policies and a 5 – 13% decline in existing policies, depending on the amount premiums have increased.
• The effects of Risk Rating 2.0 on flood insurance uptake are relatively larger in zip codes with lower median household income.

The article also suggests solutions: “To manage these trade-offs and mitigate the adverse effects created by rising premiums and lack of insurance, policymakers could consider a means-tested programme to help low-income households maintain their flood insurance coverage. While proposals vary in terms of eligibility and level of benefit, the general principle is that households with income under a certain threshold would receive some level of assistance in paying premiums (FEMA, 2018; National Research Council, 2015; U.S. Government Accountability Office, 2016). Akin to other social safety net programs, this affordability programme could be supported through general tax revenue – not by cross-subsidies within the programme, as those would only create further distortions and lower insurance uptake (Kousky and Kunreuther, 2014). There is no research to indicate that helping low-income households with the cost of insurance would create moral hazard, but more study is warranted. Insurance uptake could theoretically also be improved through other regulatory and enforcement mechanisms, but absent protective measures for low-income households, may only worsen broader housing affordability issues.”

CSFI continues to uplift a means-tested affordability program in our NFIP Reauthorization Priorities.