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Measuring the Impacts of the
National Flood Insurance Program
James P. Howard, II
University of Maryland Baltimore County
howard5@umbc.edu or jh@jameshoward.us

William and Mary Graduate Research Symposium
23 March 2012
Flood Disaster Management
 Flood recovery
   Insurance program/payout
   Federally administered
   Privately financed



 Flood mitigation
   Dams, flood control
   Building codes
   Planning laws
Benefit-Cost Analysis
     Analytical Method                      Data
 Estimates social costs and    County-level data
  benefits
                                Provided by FEMA
 Monetizes social costs and
  benefits                      Includes insurance financial
                                 statements
 Uses social discounting
                                Grant program information
Theoretical Models
       Flood Insurance             Flood Mitigation
 Benefits                   Benefits transfer
   Insurance payments         Uses estimates of other
   Administrative fees         mitigation projects
   Tax benefits               Scales-up estimates to
                                national level
   Willingness-to-pay
                               Assumes estimate is broadly
 Costs                         applicable across time
   Insurance premiums
   Environmental impacts
Valuing Flood Insurance


   ∆S = ∆C + ∆P + ∆G + ∆E
              ⇓
     ∆S = κ(e + m) + φϖπ
Valuing Flood Mitigation


     BCR = 5.0 at 2% SDR
              ⇓
     ≅17.4% annualized
$16.7 Billion
 Covers 1996-2009

 Represents net benefits from nationwide data

 Preliminary, baseline figure

 Does not consider social impact factors

 Should not be used for policymaking
Future Directions
 Sensitivity analysis to find bounds of value

 Social weighting by impact quality

 Break-even analysis

 Incorporation of different estimators
   Willingness-to-pay for flood insurance
   Benefit-cost ratios for flood mitigation projects
Acknowledgements
        Photo Credits                  Advising and Review
 Brisbane City Council              Prof. Scott Farrow, UMBC

 United States Fish and Wildlife
  Service



                                           Grant Support
                                     University of Maryland
                                      Baltimore County Graduate
                                      Student Association

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Measuring the Impacts of the National Flood Insurance Program

  • 1. Measuring the Impacts of the National Flood Insurance Program James P. Howard, II University of Maryland Baltimore County howard5@umbc.edu or jh@jameshoward.us William and Mary Graduate Research Symposium 23 March 2012
  • 2. Flood Disaster Management  Flood recovery  Insurance program/payout  Federally administered  Privately financed  Flood mitigation  Dams, flood control  Building codes  Planning laws
  • 3. Benefit-Cost Analysis Analytical Method Data  Estimates social costs and  County-level data benefits  Provided by FEMA  Monetizes social costs and benefits  Includes insurance financial statements  Uses social discounting  Grant program information
  • 4. Theoretical Models Flood Insurance Flood Mitigation  Benefits  Benefits transfer  Insurance payments  Uses estimates of other  Administrative fees mitigation projects  Tax benefits  Scales-up estimates to national level  Willingness-to-pay  Assumes estimate is broadly  Costs applicable across time  Insurance premiums  Environmental impacts
  • 5. Valuing Flood Insurance ∆S = ∆C + ∆P + ∆G + ∆E ⇓ ∆S = κ(e + m) + φϖπ
  • 6. Valuing Flood Mitigation BCR = 5.0 at 2% SDR ⇓ ≅17.4% annualized
  • 7. $16.7 Billion  Covers 1996-2009  Represents net benefits from nationwide data  Preliminary, baseline figure  Does not consider social impact factors  Should not be used for policymaking
  • 8. Future Directions  Sensitivity analysis to find bounds of value  Social weighting by impact quality  Break-even analysis  Incorporation of different estimators  Willingness-to-pay for flood insurance  Benefit-cost ratios for flood mitigation projects
  • 9. Acknowledgements Photo Credits Advising and Review  Brisbane City Council  Prof. Scott Farrow, UMBC  United States Fish and Wildlife Service Grant Support  University of Maryland Baltimore County Graduate Student Association

Editor's Notes

  1. Missouri floods in the 1920s caused significant damage.Private insurers pulled out of the market for decades.Gilbert White proposed national flood insurance in 1942.After initial trials in 1956, NFIP comes in 1968Changes include introduction of flood mitigation standards --and requirements for actuarial soundness
  2. Flood Insurance implemented to piggy back on homeowners policiesFEMA manages the National Flood Insurance FundTraditional insurers provide administrative dutiesSevere losses from major storms.--Katrina hit ~16B losses--Rita ~2B lossesFlood mitigation comes from three programsFMASRLRLF
  3. This is fundamentally an economic analysisWill cover from 1996-2009Will address both flood mitigation and flood recoveryHave recoded info for local governmentsStatewide-allocation issues - by population makes distribution more equitable - by income biases toward inequitable
  4. BCA may be considered as a balance sheet, looking like an accounting questionBCA can also be considered as the sum of economic surpluses contributing to the NSBDelta-S is the change in S due to the programThis takes advantage of that thought to simplify the development of the flood insurance NSB model
  5. This is the key equation in valuing the flood insurance component represents 1 year's net social benefits k is the amount of claims in a given year e is the exante adjustment to the expost willingness to paym is the marginal excess tax burden phi is the WYO premium to insurers varpi is the premiums paid to the NFIP pi is the historical profit ratio of insurers
  6. This is what the Multi-Hazard Mitigation Council foundforms a major baseline in establishing the NSB of flood mitigation todayBCR is lifetime returns (at 50 years). MMC report premised on funds spent in year 0 and a useful lifetime of 50 yearsThe 2% SDR is removed and we are free to apply our own SDR