Is the US National Flood Insurance Program affordable?

Space Daily via SPX: There is often tension between setting insurance premiums that reflect risk and dealing with equity/affordability issues. The National Flood Insurance Program (NFIP) in the United States recently moved toward elimination of certain premium discounts, but this raised issues with respect to the affordability of coverage for homeowners in flood-prone areas. Ultimately, Congress reversed course and reinstated discounted rates for certain classes of policyholders.

Carolyn Kousky (Resources for the Future, USA) and Howard Kunreuther's (The Wharton School, University of Pennsylvania, USA) paper in the inaugural issue of the Journal of Extreme Events, "Addressing Affordability in the National Flood Insurance Program", examines the tension between risk-based rates and affordability through a case study of Ocean County, New Jersey, an area heavily damaged by Hurricane Sandy.

Kousky and Kunreuther argue that the NFIP must address affordability, but that this should not be done through discounted premiums. Instead, the authors propose a means-tested voucher program coupled with a loan program for investments in hazard mitigation.

As a condition for a voucher, homeowners would be required to take steps to invest in flood loss reduction measures such as elevating their property. They show that that the cost of a program to homeowners and the federal government would be considerably less than if a voucher were just provided to cover the cost of insurance.

Kousky and Kunreuther conclude that a more detailed, nationwide (United States) analysis is needed to estimate the costs to the federal government of a coupled voucher and mitigation loan program, as well as the expected benefits of reduced flooding losses in the future....

The 1979 Easter flood in Jackson, Mississippi, National Weather Service