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Event Recap: The National Flood Insurance Program - The Way Forward

March 10, 2014
The timing couldn’t have been better for “The National Flood Insurance Program: The Way Forward,” a Penn Wharton PPI event in DC. On March 4th, The House of Representatives passed H.R. 3370, the Homeowner Flood Insurance Affordability Act, and on March 7th, just three days later, Penn Wharton PPI faculty affiliates Howard Kunreuther and Erwann Michel-Kerjan were presenting their research on National Flood Insurance Program (NFIP) reform to staffers on the hill as well as various agency representatives. With the bill still waiting approval by the Senate, the Penn Wharton PPI faculty affiliates were poised to have a real impact on policy decisions.

Professors Howard Kunreuther, co-director, and Erwann Michel-Kerjan, executive director, of the Wharton Risk Management and Decision Processes Center, are experts in understanding the financial impact and public policy challenges associated with catastrophic events.  They have co-authored many papers on the topic of flood insurance, including Implementing the National Flood Insurance Reform Act In a New Era of Catastrophes, an Issue Brief for Penn Wharton PPI, and are authors of the book, At War with the Weather.


Professor Howard Kunreuther (L) Professor Erwann Michel-Kerjan (R)

To begin the presentation, Kunreuther and Michel-Kerjan pointed out several key facts about flood insurance.

Fact #1: U.S. federal disaster relief has been increasing over time; making insurance reform critical.

Fact #2: Investing in risk-reduction measures makes an enormous difference.

Fact #3: Despite low premiums, many individuals are uninsured, even when they are required to have coverage.

Fact #4: Many people who purchase flood insurance quickly let it lapse.

Fact #5: Policyholders’ balance (premiums paid minus claims received) varies significantly by state.

After having laid the groundwork for discussion, Kunreuther and Michel-Kerjan proposed a strategy for moving forward, including investment in loss reduction measures and addressing the affordability issue.

With regards to H.R. 3370, they made these specific suggestions:

  • Delete the 1% cap provision in H.R. 3370
  • Target enforcement of the flood insurance requirement on federally-insured mortgages and require anyone in a flood plain to purchase basic insurance coverage.
  • Specify rate increases of 10-to-18 percent per year so there is a longer glide path to risk-based premiums but it takes 10 years or less to move to risk-based premiums.
  • Address the affordability issue by providing government insurance vouchers based on income level, combined with grants and long-term loans to offset the upfront cost of loss reduction measures. The amount of the vouchers will be reduced when the property is made safer since the risk-based premiums will be lower.

Regardless of what happens with the Senate vote on H.R. 3370, the debate about NFIP reform will continue.  And it is through informed policy decisions that the United States will become more resilient and reduce future losses from floods and other disasters.  By sponsoring events featuring experts on policy related topics, Penn Wharton PPI enables research based discussions on timely issues and provides policymakers non-biased research to make more informed decisions.

An audio recording of this event is available on the Penn Wharton PPI iTunes channel.

Update Posted 3/14/2014: On Thursday, March 13, Senate voted to pass H.R. 3370 and it is likely President Obama will sign it.

For press inquiries, please contact:
Jacquie Posey, 215-898-6460 or jposey@upenn.edu

PENN WHARTON PPI
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