Mandatory Flood Insurance Purchase in Remapped Residual Risk Areas Behind Levees
"This report examines the amount of flood insurance that must be purchased (and retained) on
loans secured by real property located in federally designated special flood hazard areas (SFHAs).
It is written in response to three situations: (1) the Federal Emergency Management Agency’s
remapping efforts that include verifying the status of all levees as providing protection against a
100-year flood, which are currently depicted on Flood Insurance Rate Maps, and widespread
concerns among homeowners about new requirements to purchase flood insurance should the
levee become decertified; (2) uncertainty as to whether the mandatory amount of flood insurance
should be equal to the assessed value of the insured residential structure or the unpaid principal
balance (UPB) of the mortgage loan; and (3) concerns that homeowners may be inappropriately
asked to purchase an amount of flood insurance that is several times the value of the actual
property. This report will be updated as events warrant."

The National Flood Insurance Program: Factors Affecting Actuarial Soundness
"The vast majority of homes and small commercial buildings that are insured against flood
damage in the United States are covered by the National Flood Insurance Program (NFIP),
which is administered by the Federal Emergency Management Agency (FEMA) in the
Department of Homeland Security. Although the flood insurance program had been largely
self-sustaining in the past, it had to borrow about $17 billion from the federal Treasury to pay
claims after the catastrophic hurricanes of 2005. That borrowing has highlighted questions
about the program’s financial health, including the actuarial soundness of the premium rates
charged on policies that are not explicitly subsidized and the cost of paying claims for properties that have suffered multiple flood losses.

This Congressional Budget Office (CBO) paper—prepared at the request of the Ranking
Member of the Senate Committee on Banking, Housing, and Urban Affairs—explains how
FEMA sets “full-risk” (actuarially based) premium rates for the flood insurance program. The
paper then discusses various reasons for concern that those rates may not be adequate to cover
the total expected costs associated with the program’s full-risk policies. The report also
addresses other aspects of the NFIP, including the impact of insured properties that have
flooded more than once and the U.S. market for flood insurance from private companies. In
keeping with CBO’s mandate to provide objective, impartial analysis, this report makes no
recommendations..."

Midwest Flooding Disaster: Rethinking Federal Flood Insurance?
"Historically, floods have caused more economic loss to the nation than any other form of natural disaster. In 1968, Congress created the National Flood Insurance Program (NFIP) in response to rising flood losses and escalating costs resulting from ad-hoc appropriations for disaster relief. Federal flood insurance was designed to provide an alternative to federal disaster relief outlays by reducing the rising federal costs through premium collection and mitigation activities. The purchase of flood insurance was considered to be an economically efficient way to indemnify property owners for flood losses and internalize the risk of locating investments in the floodplains. Despite massive rainfall-river flooding in several Midwestern states along the upper Mississippi River and its tributaries in June 2008, damages for the most part are not expected to produce significant insured flood losses under the NFIP. This significant but not unprecedented flood event instead will likely cost several billions in uninsured damages that will probably remain uncompensated or be paid through federal emergency supplemental appropriations for disaster relief. A key lesson learned from the 1993 and 2008 Midwest floods is that many people believe that the government will provide them with economic assistance despite their lack of insurance. What then is the appropriate role of the federal government in dealing with ambiguous risks, where the insurance industry is reluctant to offer coverage and homeowners and businesses demonstrated a reluctance to purchase coverage, even when is it mandatory?.."