Pricing Flood Insurance: How and Why the NFIP Differs from a Private Insurance Company

Carolyn Kousky () and Leonard Shabman
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Carolyn Kousky: Resources for the Future

RFF Working Paper Series from Resources for the Future

Abstract: Flood insurance in the United States is offered through the federal National Flood Insurance Program (NFIP). After going deeply into debt following the 2005 hurricane season, pricing in the program has been the subject of debate and two reform bills. Private sector insurance pricing has often been used as a benchmark in these discussions. In this paper, we explain NFIP pricing in the context of actuarial pricing principles, clarify why some polices are priced below what is considered to be the full risk rate, and explain how and, more importantly, why NFIP pricing practices differ from the private sector. NFIP pricing has incorporated other program goals that are at times at odds with the ability to cover all payouts for insured losses without taxpayer support. These multiple programmatic goals make the private sector a questionable analog for the NFIP.

Keywords: flood insurance; rate-setting; NFIP; premiums (search for similar items in EconPapers)
Date: 2014-10-27
New Economics Papers: this item is included in nep-ias
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Citations: View citations in EconPapers (12)

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