The National Flood Insurance Program: A Primer

The National Flood Insurance Program (NFIP) is a federal program providing flood insurance to residents of participating communities. Created in 1968, communities can voluntarily join the program, adopting baseline floodplain management regulations, and then all residents—homeowners, renters, and businesses—are eligible to purchase a flood insurance policy. The program, now housed in the Federal Emergency Management Agency (FEMA), also maps flood risks, helps educate residents about flooding, and supports flood risk reduction through grants, outreach, and incentives.

Learn more about the NFIP.

FEMA’s Community Rating System: Worth the Effort?

In response to growing threats of climate change, the US federal government is increasingly supporting community-level investments in resilience to natural hazards. As such federal programs become more widespread, evaluating their efficiency and effectiveness becomes essential. This issue brief analyzes the Community Rating System (CRS), which is part of the National Flood Insurance Program (NFIP), by discussing if it has been effective in reducing flood losses, how it can be improved, and what lessons it has for similar types of programs.

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Federal Disaster Assistance: An Overview of Post-Disaster Programs

This Primer explains the main federal post-disaster programs managed by the Federal Emergency Management Agency, the Small Business Administration, and the Department of Housing and Urban Development, and offers insight on the current system and suggestions for policy reform so that disaster aid better serves those most in need.

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The National Flood Insurance Program in Pennsylvania

With many regions of high flood risk, primarily located along the state’s rivers and streams and their tributaries, floods in Pennsylvania can also occur in lower elevation areas—even far from rivers and streams—as the result of heavy rainfall. This risk of rainfall related flooding is getting worse in the northeast of the United States as the planet warms. This Issue Brief offers an overview of the National Flood Insurance Program (NFIP) in the Commonwealth of Pennsylvania in addition to commenting on what may change with Risk Rating 2.0, the upcoming reframing of the program.

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The Coming Storm: How U.S. Cities Are Managing Stormwater from Increasingly Extreme Rainfall Events

In the United States, extreme rainfall events are becoming more frequent and more intense as a result of climate change. However, there is a regulatory gap in federal policies, technical support, and guidance since no single agency is focused on stormwater flooding. This Issue Brief looks specifically at stormwater flooding (also called pluvial flooding) and how U.S. cities can manage increases in water volume, and not just water quality.

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Catastrophe Bonds

The first catastrophe bonds were issued in the mid-1990s and the market has been steadily growing since that time. This primer explains the general mechanics of catastrophe bonds, provides examples of their use, and outlines future opportunities for the market.

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Framework for Evaluating the Role of Insurance in Managing Risk of Future Pandemics

The current pandemic has proven to be one of the most extensive complex catastrophic risks the global economy has ever faced. This brief provides stakeholders with a practical framework for defining a meaningful role for insurance with respect to business interruption and other risks from future pandemics.  We explore three options where the property and casualty industry may be able to play a role in managing the risk of future pandemics in the United States.

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Understanding U.S. Climate Risk Disclosures

Investors are increasingly climate-conscious, and the SEC recently asked for input on potential changes to climate disclosure guidance. Read the most recent primer for an overview of these risks and the state of climate disclosures, along with how they might change moving forward.

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An Overview of the National Flood Insurance Program in Washington, DC

Flood insurance is available to residents of Washington, DC primarily through the National Flood Insurance Program. However, flood risk extends beyond the 100-year floodplain and many residential properties exposed to flooding are not insured. This Issue Brief, produced in partnership with the District of Columbia’s Department of Energy and Environment, explores flood risk in DC and the role of flood insurance in helping residents recover.

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Improving the Post-Flood Financial Resilience of Lower-Income Households through Insurance

Low- and moderate- income (LMI) households and communities suffer disproportionately from disasters, but there are a few policies or programs to help them achieve post-disaster financial resilience. This brief is intended to help policymakers begin the conversation about what new or supplemental policies could help LMI households in at-risk areas. In particular, it explores the critical role insurance can play in securing financial resilience.

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We are in a new era of catastrophes with the number of low probability, high-consequence (LP-HC) events increasing significantly. Due to a set of heuristics and cognitive biases, those residing in hazard-prone areas and decision-makers in the public and private sectors are underpreparing for disasters that are now occurring with more frequency and intensity. This primer characterizes the nature of these heuristics and biases and why individuals often underprepare for LP-HC events.

Read the second in our Primer series.


The City of Portland, Oregon piloted an innovative flood insurance affordability program in 2017 and 2018 that included one-on-one consultations between flood insurance policyholders and an insurance agent who was an expert on flood insurance. These consultations found that roughly half of the reviewed policies had some type of error in pricing or could lower insurance costs through application of elevation certificates. This issue brief covers other findings from this program.

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The concept of parametric insurance, while not new, is getting increased attention as a way to provide faster and more flexible funds to victims of disasters and as a tool to provide post-disaster funds for emerging and otherwise difficult-to-insure risks.  This primer explains the concept of parametric insurance with a focus on its use in providing financial protection against disasters.

The Risk Center has launched a new series to better explain concepts in risk and resilience. Read our first Primer.


New Jersey residents and visitors enjoy the amenities that come with its more than 1,800 miles of coastline, as well as interior rivers and other waterways. While supporting recreation, tourism, and many sectors of the economy, these waterways and coasts also introduce flood risk. In collaboration with Rutgers and The New Jersey Climate Change Resource Center, this brief covers the National Flood Insurance Program (NFIP) in the state of New Jersey.

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Disclosure about flood risk outside the Special Flood Hazard Area (SFHA) is limited and purchase of flood insurance is not required. We identified three drivers of flood insurance take-up outside the SFHA: (1) recent or repeated flooding outside the SFHA; (2) active and continuing outreach and education about flood risk and flood insurance; and (3) enough personal disposable income among consumers to afford flood coverage.

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Moving the Needle on Closing the Flood Insurance Gap

In October 2018, the Wharton Risk Center’s Policy Incubator hosted a workshop designed to evaluate policy options for expanding the number of people with flood insurance in the United States, particularly those of low and moderate income. In this brief, we present seven approaches that workshop participants felt had the potential to generate substantial increases in take-up rates across the country.

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Insuring against catastrophic risks: The role of loss experience and emotions

One reason that individuals do not purchase insurance is that they are strongly influenced by cognitive biases in their decision process. Two web-based studies reveal that individuals who experienced regret because they were uninsured at the time of a hurricane tended to purchase insurance in the next period. One way to reduce regret for these individuals is to add flood coverage to a homeowners’ policy.

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Local Solutions to Flood Insurance Affordability: Portland’s Flood Insurance Savings Program

In a new issue brief, we examine Portland’s Flood Insurance Savings Program in detail, discussing its structure, participants, and impact on flood insurance premiums. We also identify lessons learned that may be useful to other communities struggling with flood insurance affordability and to policymakers considering NFIP reform.

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Florida’s Private Residential Flood Insurance Market

Drawing on our recent report, The Emerging Private Residential Flood Insurance Market in the United States, this issue brief describes the Florida market and the measures the state has taken to support its growth.

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A Framework for Managing Catastrophic Risks

In this Issue Brief, we pose three questions to guide the development of a framework for catastrophe risk management: (1) How do we harness the strengths of the private sector in financing disaster risk? (2) What are the complementary roles of the public and private sectors in promoting greater resilience? And (3) How do we effectively integrate risk reduction and risk transfer to provide effective protection against catastrophes?

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Wildfire Costs in California: The Role of Electric Utilities

The costs emanating from a wildfire can be broad and impact many sectors. Depending on legal and regulatory regimes, costs can shift across different groups. In this brief, we focus on electric utilities and the share of wildfire costs that they pay in California for utility ignited wildfires.

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Structure of the Residential Flood Insurance Market

Drawing on our recent report, The Emerging Private Residential Flood Insurance Market in the United States, our newest issue brief describes the key players and structure of the residential flood market.

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Flood Insurance in Puerto Rico

Flood insurance in Puerto Rico has attracted media and policymaker attention since Hurricanes Irma and Maria devastated the island in late summer 2017. One reason is the incredibly low take-up rate for flood insurance, which left some residents financially vulnerable following flood damage from back-to-back hurricanes. Another is the surprising shift over the last five years from the vast majority of flood policies being written with the National Flood Insurance Program (NFIP) to instead being written by private sector insurers.

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Mastering Catastrophic Risk: How Companies are Coping with Disruption

Directors, executives, and managers who have already put in place a risk management strategy that enables them to take deliberative actions in response to an adverse event are better prepared to recover from that disruption and stay true to their firm’s core values.  From our study of large publicly-traded firms in the U.S. and abroad, we have identified a set of management practices for company leaders to overcome their systemic decision biases and reduce the likelihood and the impacts of large-scale disruptions.

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The Ostrich Paradox: Why We Underprepare for Disasters

Six decision-making biases cause individuals, communities and organizations to underinvest in protection against low-probability, high-consequence events. We propose a behavioral risk audit that recognizes that these biases are difficult to overcome but that they can be used to develop strategies to improve individuals’ decision making processes in preparing for disasters before they occur.

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Identifying and Reducing Barriers to Infrastructure Catastrophic Risk Insurance: Transportation Infrastructure Systems

The Wharton Risk Management and Decision Processes Center is undertaking a study funded by the Department of Homeland Security’s Critical Infrastructure Resilience Institute (CIRI). The purpose of the project is to identify barriers and opportunities for improving infrastructure insurance and resilience for catastrophic events and disruptions. This brief summarizes the key findings and recommendations upon completion of the first two phases of the project.

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The NFIP’s Increased Cost of Compliance (ICC) Coverage

In connection with the National Flood Insurance Program’s anticipated reauthorization in 2017, Congress is looking at several proposals that would address the program’s Increased Cost of Compliance (ICC) coverage, expanding its eligible uses and giving policyholders more funds to implement qualifying risk-reduction measures. In this policy brief, we examine ICC claims for single-family homes from 1997 to 2014 and report on our findings from conversations with floodplain managers in several states. Our analysis provides context for ongoing debates in Congress and highlights some of the key reasons the program is not more widely used.

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Characteristics and Protective Behaviors of Hazard Insurance Purchasers

We study the relationship between disaster risk reduction and insurance coverage to assess the presence of moral hazard for two different natural hazards with survey data from Germany and the United States. The results show that moral hazard is absent. Nevertheless, adverse risk selection may be present. This has significant policy relevance such as opportunities for strengthening the link between insurance and risk reduction measures and the use of risk-based insurance premiums.

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Current Flood Insurance Policy and Potential Improvements

A well-designed insurance program can play an important role in linking investment in cost-effective reduction measures with financial protection should a disaster occur. Measures to increase resilience to floods include improved accuracy of flood maps and communication on flood risk, elevation certification for at-risk structures, vouchers and/or other financial aid for homeowners to purchase flood insurance and undertake loss-reduction measures that will also address affordability issues, and government acquisition of at-risk properties for open space and flood buffer zones.

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Proposal to Make Flood Insurance Affordable in Charleston County, South Carolina: Vouchers Coupled with Loans to Elevate Homes

Our study on Charleston County, South Carolina finds that if insurance premiums reflected risk, the price of flood insurance for many properties in Special Flood Hazard Areas in Charleston County, South Carolina could more than double over their current subsidized premiums. Elevating a house a few feet can decrease the homeowner’s risk-based premium by 70 to 80 percent, saving thousands of dollars annually. We find that coupling vouchers with mitigation loans to elevate homes can reduce government expenditures by more than half over a voucher program that does not require mitigation when the cost of elevating a house is about $25,000 in high hazard A zones. In the coastal V zones, cost savings can be achieved even when the cost of elevation is as high as $75,000.

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Examining 30 Years of Residential Flood Insurance Claims in the United States: Two Key Findings

We find that over the studied period, in FEMA-mapped 100-year floodplains (SFHAs), the average claim rate – defined as the ratio of paid claims to the number of policies-in-force – is 1.55 percent. Surprisingly, outside the 100-year floodplains, the average claim rate is also higher than 1 percent at 1.27 percent, with no statistically significant difference in the rates across the two groups. This higher-than-expected claim rate in non-SFHAs could reflect inaccurate and out-of-date flood maps. It could also be due to adverse selection: only the riskiest properties in FEMA-defined non-SFHAs are insuring in these areas. Our results show that the majority of claims are for modest amounts. Half of claims over the three decades of data we analyzed are for less than 10 percent of the building’s value. Only a small portion of claims exceed three-quarters of a building’s value.

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Seeing Is Believing? Property Prices in Inundated Areas

Our findings suggest that buyers of floodplain properties have a limited awareness about flood hazards, despite the federal requirement for flood insurance for floodplain properties with a federally-backed mortgage. Our results suggest that it is the result of being flooded, rather than knowing there is a potential to be flooded, that affects property prices (“seeing is believing”).

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Does Federal Disaster Assistance Reduce the Demand for Insurance Protection?

Federal disaster relief potentially creates moral hazard: receiving or expecting to receive money from the government after a disaster might reduce demand for insurance, resulting in even greater need for government relief when another disaster hits. Overall, we find that federal disaster assistance grants result in decreased demand for insurance. Low‐interest SBA disaster loans have no systematic impact on insurance purchase decisions.

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Understanding Individual Flood Risk Perceptions and Flood Insurance Choices to Build More Resilient Communities: A Survey of New York City Residents

Six months after Hurricane Sandy, we surveyed over 1,000 homeowners in New York City who live in a flood-prone area about their flood risk perceptions and flood insurance purchases. 44% of respondents stated they purchased flood insurance because it was mandatory. Only 21% bought flood insurance voluntarily, 33% did not have coverage, and 2% did not know whether they had flood coverage. People tend to overestimate their flood probability and underestimate their potential flood damage.

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An Economic Analysis of Corporate Demand for Insurance in the U.S.

The U.S. Terrorism Risk Insurance Act (TRIA) was established in 2002 as a temporary measure to make terrorism  insurance widely available to corporations.  TRIA will expire at the end of 2014 unless extended by the federal government.  If extended, the government might require insurers to assume more risk which could increase prices.  We find that under current market conditions, firms’ demand for terrorism insurance is strong and is not very sensitive to gradual price changes.

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Quantifying the Role of Effective and Well-Enforced Building Codes: The Case of Hail Storms in Missouri

A midsize community of 50,000 people that experiences a moderate hail storm could expect to reduce losses by approximately $4 to $8 million by adopting and enforcing appropriate building codes.

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Addressing Affordability in the National Flood Insurance Program

The President signed the Biggert-Waters Flood Insurance Reform Act with overwhelming bipartisan support from Congress. This bill included provisions for risk-based pricing for flood insurance to improve the NFIP’s financial basis. Some legislators are now wavering on their commitment to risk-based pricing because of concerns their constituents will not be able to afford flood insurance. We propose a means-tested voucher program coupled with a loan program for investments in loss reduction measures, made affordable by reductions in the NFIP risk-based premiums.

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NFIP Community Rating System (CRS) Analysis for New York State

The NFIP’s Community Rating System (CRS) is a voluntary incentive program that encourages community floodplain management activities that exceed the minimum NFIP requirements. Today, only 28 of the 1,466 NFIP communities in New York State participate in the CRS. This 1.9% participation rate is three times lower than the national average.

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Analysis of Flood Insurance Protection: Rockaway Peninsula in New York City

The Rockaway Peninsula (RP) is an 11-mile community in New York City with a population of 103,825 that was severely impacted by Hurricane Sandy.  Data analysis shows that only 14.4 percent of the housing units in the RP had flood insurance in 2012.

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Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry

We propose three guiding principles to make insurance more transparent and equitable, and to encourage investment in protective measures: Principle 1: Premiums reflecting risk; Principle 2: Dealing with equity and affordability issues; Principle 3: Multi-year insurance.  The National Flood Insurance Program (NFIP) is a natural starting point for multi-year insurance tied to the property, not the homeowner.

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Who pays and who benefits most from NFIP flood insurance?

Our analysis of the entire NFIP portfolio between 1978 and 2008 reveals that in some states, policyholders have paid as much as 15 times in premiums as they have collected in claims; in other states, policyholders have received 5 times more in insurance claims than they paid in premiums over this period…

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The Psychology of Natural Hazards

Why do few people in catastrophe-prone areas invest in risk reduction measures?
Long‐term sustainable solutions can overcome myopic thinking and provide economic incentives for encouraging sound investments in risk reduction measures…

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