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Policy questions/ concerns raised by the fact that
storms of Sandy's strengths are expected to occur more

-Is federal flood insurance that complements land use
management still an appropriate method to manage
flood risk? Does it distribute the burden effectively between the insured and the general public
-Is flood risk possible for the private market to underwrite?
-Could flood risk be effectively transferred to the private
sector (via reinsurance) or the capital markets (via
catastrophe bonds)
-Should the NFIP debt to the Treasury be forgiven
-Are the consequences of flood risk and the level of
protection offered by hurricane protection systems effectively communicated to the public?


4 reasons that Flood insurance is considered to be
uninsurable in the private market:

1. Only the people with the highest risk levels tend to purchase coverage
2. Possibility of catastrophic losses
3. Dicult to accurately price the risk due to limitations in
hazard assessment
4. Because the risk of losses among the insureds are not
independent, a very high risk load is required


3 uses of the flood hazard maps developed by FEMA
for NFIP:

-Set insurance rates
-Regulate floodplain development
-Inform those who live in the 100-year floodplain of the potential flood hazards


What are two conflicting objectives of policymakers:

1. Reduce the long term exposure to flood losses, while
2. Maintaining the program's solvency & mandate to provide affordable flood insurance to the public


List some questions raised by the conflicting
policymaker objectives:

-How can FEMA balance actuarial rates and affordability?
-How to reduce the escalating cost of flooding?
-How to motivate property owners to purchase insurance protection, and encourage the local governments to make land use adjustments to restrict development in high risk flood zones?
-How can the private sector's role be expanded in assuming NFIP flood risk?


Issues with the current NFIP:

-Even though residents who have a federally backed mortgage and live in a floodplain need to have flood insurance, many do not purchase
-Many individuals misunderstand flood risk, thinking that if a 100 year flood occurs, there will be no more floods of the same magnitude for 100 years.
-Many individuals misunderstand the risk spreading function of insurance, and are too optimistic about the chance of damage to their property
-NFIP rates may not adequately reflect the flood risk, because Congress requires that the coverage is widely available and affordable
-FEMA's new digital maps may not meet appropriate
flood hazard data quality standards.
-The public cost of post disaster recovery financing is


2 reasons that hazard mitigation is not always
incorporated into the risk management decision making
of the government and private sector:

1. the restrictive land-use zoning regulations and building
requirements may conflict with plans for economic
2. the cost-sharing mitigation funding requirements on
property buyouts and relocation of at risk properties is a
financial burden for the communities


3 responsibilities of FEMA regarding hazard maps:

1. Identifying areas of special flood, mudslide or
flood related erosion hazards
2. Completing a Flood Insurance Study (FIS)
3. Issuing a Flood Insurance Risk Map (FIRM) that indicates risk premium rate zones


2 changes made to the NFIP by the Biggert-Waters
Flood Insurance Reform Act of 2012:

1. Increasing the premiums
2. Reducing incentives for rebuilding in flood risk zones


List some issues of contention that still exist after the
Biggert-Waters Act:

-It is difficult for FEMA to assess the levee-specific risk and corresponding risk premium
-The premium adjustments necessary to strengthen the
financial solvency of the NFIP could result in property
owners dropping their policies
-Experts believe that even if FEMA increases the rates up to the maximum amount allowed (20% per year), they would still have insuffcient funds to cover the obligations.
-FEMA owes $17.5B to the Treasury for losses due to Katrina. Many experts do not believe that FEMA will be able to repay this within 10 years.


List some examples of questions that policymakers ask
when deciding whether to intervene in private insurance

-Do economic markets provide a sufficient amount of
insurance against flood hazards?
-Are the insuring firms (that cover flood) sufficiently
capitalized so that widespread insolvency would not occur?
-Would federal disaster insurance crowd out the private
market and create unintended liabilities for taxpayers?
-Would insurers cherry pick the most appealing risks, leaving the unprofitable business for the government?


2 ways that the government became a de facto regulator
of economic activity in flood prone areas under NFIP:

1. Flood insurance may be required as a condition of obtaining a federally secured mortgage loan, for buildings located in SFHAs
2. Managerial regulation, where the government provided subsidized flood insurance in communities that took steps to regulate the flood plain through land-use zoning ordinances and building standards


List the 4 causes for economic regulation:

1. People insisted that social & ethical values need to be
reflected in the operation of the economy, in addition to
economic values.
2. The government was viewed as necessary to more efficiently coordinate and use the resources, as it is able to prescribe land use zoning ordinances and building code standards
3. Due to the widespread flooding in the 60s, people became interested in shifting risk from themselves to the government. Premium subsidies were thought to be appropriate
4. Sole reliance on insurance markets was not an option.
Historically, the insurers and individuals have not had
sufficient information for the market to operate effectively


3 reasons that premium subsidies are often thought to
be appropriate for flood risk:

1. residents of flood-prone areas did not understand the
flood risk when they built there
2. there were no public safeguards restricting construction in the floodplain
3. premium subsidies on pre-FIRM structures could motivate communities to participate in the program


List some actions that FEMA has taken to address the
problem of Repetitive Loss Programs:

-Reconstruct/ elevate or flood-proof substantially damaged structures to prevent future damage.
-Phasing out premium subsidies to RLPs
-Provide data to communities to help them address RLPs


2 ways that the premium subsidies to RLPS have been
phased out:

1. voluntary buyouts
2. charging full actuarial rates to owners who do not accept FEMA's offer to mitigate the impact of flood damage


List some explanations for the low market penetration
of NFIP:

-The insurance is seen as not being worth the cost
-People have misperceptions about low probability risks and lack information about the NFIP
-Private insurance agents do not market the NFIP
-There is a lack of compliance with the mandatory purchase requirement; or the owners do not maintain the coverage for the life of the loan
-Homeowners in the risky areas may not have a mortgage, or have a mortgage from a lender that does not enforce the requirement


List an argument for expanding the NFIP to offer
optional wind coverage.

This is necessary because of diculties of property owners
obtaining affordable private wind coverage along the Gulf and Atlantic coasts


List an argument against expanding the NFIP to offer
optional wind coverage.

-there is already adequate coverage capacity via the private market or state residual market.
-Adding coverage to the NFIP will increase the financial
exposure to taxpayers.
-NFIP may not necessarily be able to determine actuarially sound rates
-even actuarial rates will not be sufficient to cover
administration costs and losses in the event of a catastrophic event.


List some potential obstacles to offering wind coverage,
as stated by GAO:

-Potential adverse selection
-Communities would have to adopt wind hazard prevention standards
-There is uncertainty about the adoption of programs to
accommodate wind coverage
-Difficulties in establishing a new rate setting process
-Enforcement of new building codes
-Administration & oversight of the program


List some issues that still remain for future
congressional consideration, following the Flood
Insurance Reform Act of 2012:

-The increasing flood risk vulnerability due to frequent
extreme weather events and population growth in flood prone areas
-Affordability of insurance coverage in era of actuarial
premium pricing
-Debt forgiveness
-Accuracy of flood hazard maps and risk assessment methods
-Movement toward a comprehensive integrated watershed management framework of risk perception, risk management, and disaster response strategy
-Feasibility of catastrophe disaster insurance
-Federal disaster assistance and moral hazard


3 questions regarding the increasing flood risk
vulnerability due to frequent extreme weather events
and population growth in flood prone areas

1. what additional steps should the government take to
manage and mitigate the flood disasters and discourage
overdevelopment in the flood vulnerable areas?
2. how to best improve the coordination between the water resources and floodplain management agencies at the federal, state and local levels
3. is there a need to plan for the sustainability of the NFIP in an environment of increasingly frequent catastrophic


4 questions regarding the Affordability of insurance
coverage in era of actuarial premium pricing

1. will the changes in the premium structure from the 2012 Act be sufficient to address the solvency concern?
2. what is the feasibility of vouchers for low income
3. what is the best approach to balance the trade o between increasing the NFIP's future income versus making coverage available and affordable?
4. would privatization of flood risk make insurance more or less affordable?


3 questions regarding Debt forgiveness:

1. should Congress eliminate NFIP's debt?
2. if so, what would be the consequences across the various stakeholders of debt forgiveness?
3. will the NFIP reserve be sufficient to offset the future
catastrophic loss years?


2 questions regarding the Accuracy of flood hazard
maps and risk assessment methods:

1. is there need for a common definition of flood protection between the US Army Corps of Engineers and FEMA levee certification?
2. what resources will be necessary to produce both
flood risk and coastal hazard vulnerability maps?


2 questions regarding the Movement toward a
comprehensive integrated watershed management
framework of risk perception, risk management, and
disaster response strategy:

1. should there be a more encompassing water resources and mitigation planning process that encourages flood & water resources planning and flood mitigation on a watershed basis?
2. what is the best approach to strengthening local
floodplain management and planning, and to guide development in regulated floodplains to save lives and reduce property damage?


2 questions regarding the feasibility of catastrophe
disaster insurance:

1. what is the best approach to address misperceptions about the nature of the NFIP, and barriers to public understanding about flooding?
2. should the NFIP cover all claims associated with
catastrophic losses, or just the claims in an average annual loss year?


1 question regarding Federal disaster assistance and
moral hazard:

does the presence of federal disaster assistance introduce moral hazard in flood management in a way that inappropriately shifts risks to taxpayers


6 policy options to address the projected increase in flood losses, due to population growth & migration,
changes in climate and degradation of water-based

1. Long Term Flood Insurance Contracts (LTFIC): 5, 10 or 20 year flood insurance contracts combined with long term mitigation loans.
2. Privatization of Flood Risk: Options include a multi-peril insurance approach, and a reinsurance pool approach.
3. Multi-Peril Homeowners Policies covering Flood Peril: multiple-peril policies that cover flood, and transferring all of the flood risk to the federal government via reinsurance transaction.
4. Community-Based Flood Insurance Policy Contracts: Group flood insurance for the entire community/ identied
floodplain area/ residual risk areas behind the levees.
5. Integrated Watershed-Based Risk Management Strategy: Combines floodplain management with natural resources (water resources and waste water) management
6. Technological Innovation in Financing Large-Scale Natural Disasters


Advantage of the Multiple Peril HO Policy that covers
Flood approach:

Greater pooling & diversification of flood risk.