What are the savings? An Assessment of the National Flood Insurance Program s (NFIP) Community Rating System (CRS)

Transcription

1 What are the savings? An Assessment of the National Flood Insurance Program s (NFIP) Community Rating System (CRS) Ajita Atreya Postdoctoral Research Fellow Wharton Risk Management and Decision Processes Center University of Pennsylvania, Philadelphia, PA atreya@wharton.upenn.edu Erwann Michael-Kerjan Executive Director Wharton Risk Management and Decision Processes Center University of Pennsylvania, Philadelphia, PA erwannmk@wharton.upenn.edu Jeffrey Czajkowski Willis Research Network Fellow Wharton Risk Management and Decision Processes Center University of Pennsylvania, Philadelphia, PA jczaj@wharton.upenn.edu Selected Paper prepared for presentation at the 2015 Agricultural & Applied Economics Association and Western Agricultural Economics Association Annual Meeting, San Francisco, CA, July Work in Progress [Do not Site] Copyright 2015 by [authors]. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.

2 What are the savings? An Assessment of the National Flood Insurance Program s (NFIP) Community Rating System (CRS) Ajita Atreya, Erwann Michel-Kerjan and Jeffrey Czajkowski atreya@wharton.upenn.edu; erwannmk@wharton.upenn.edu; jczaj@wharton.upenn.edu; Center for Risk Management and Decision processes The Wharton School, University of Pennsylvania July, 2015

3 Outline 1. Linking flood awareness and risk reduction efforts to insurance at the community level: from concept to practice 2. How does the CRS work? 3. What can we learn from 1,200 participating communities? 4. What s Next

4 Although the importance of encouraging communities to invest in flood risk reduction measures before a disaster is widely recognized, this has typically proven to be a challenge in practice Incentive-based programs can go a long way in this regard Insurance is ideally placed to play that role

5 But We ve reviewed 20 residential flood insurance markets around the world as part of the Alliance work (Atreya et al, 2014) Surprisingly, for most of them there is no direct link between flood insurance pricing and the adoption of risk reduction measures (those two dimensions remain two different worlds) One exception is found in the United States with the National Flood Insurance Program--NFIP (a federally-run program and the main provider of residential and small business flood insurance since 1968)

6 NFIP integrates three key dimensions of community flood resilience Flood Maps Flood Mitigation Flood Insurance

7 Established in 1990 the NFIP s Community Rating System (CRS) is a voluntary incentive program that recognizes and encourages community floodplain management activities that exceed the minimum NFIP requirements. As a result, flood insurance premium rates are discounted to reflect the reduced flood risk resulting from the community actions meeting the three goals of the CRS: Reduce flood damage to insurable property; Strengthen and support the insurance aspects of the NFIP, and Encourage a comprehensive approach to floodplain management

8 Outline 1. Linking flood awareness and risk reduction efforts to insurance at the community level: from concept to practice 2. How does the CRS work? 3. What can we learn from 1,200 participating communities? 4. What s Next?

9 CRS : Activities and Credits 19 creditable high-level activities, organized under 4 main series Activities Maximum Possible Points Activities Maximum Possible Points 300 Public Information Activities 310- Elevation Certificates Map information Services Flood Damage Reduction Activities 510- Floodplain Management Planning Outreach Projects Hazard Disclosure Flood Protection Information Flood Protection Assistance Flood Insurance Promotion Mapping and Regulations 410- Floodplain Mapping Open Space Preservation Higher Regulatory Standards Flood Data Maintenance Storm water management Acquisition and Relocation Flood Protection Drainage System Maintenance Warning and Responses 610-Flood Warning and Response Levees Dams 160 Total 12,554

10 CRS : Activities and Credits Element Detail Activities 300 Public Information Activities Maximum Possible Points 310- Elevation Certificates Map information Services Outreach Projects Hazard Disclosure Flood Protection Information Flood Protection Assistance Flood Insurance Promotion Mapping and Regulations 410- Floodplain Mapping Open Space Preservation Higher Regulatory Standards Flood Data Maintenance Storm water management 755 Each creditable activity has one or more specified elements and associated points

11 22,000 NFIP participating communities Approximately 19,000 with NFIP policies-in-force 1,200 participate in the CRS (i.e., CRS score of 9 or lower); represent 2/3 of all NFIP insurance policies in the country

12 CRS : Credits and Discounts CRS Classes and NFIP premium reductions CRS Class Credit points Premium reduction for residences in SFHA (i.e., 100 year floodplain) Premium reduction for residences outside SFHA Number of communities benefitting (2011) 1 >4,500 45% 10% 1 2 4,000-4,499 40% 10% 2 3 3,500-3,999 35% 10% 1 4 3,000-3,499 30% 10% 5 5 2,500-2,999 25% 10% ,000-2,499 20% 10% ,500-1,999 15% 5% ,000-1,499 10% 5% % 5% (mostly inactive) Note - SFHA: Special flood Hazard Areas (high risk of flood)

13 Outline 1. Linking flood awareness and risk reduction efforts to insurance at the community level: from concept to practice 2. How does the CRS work? 3. What can we learn from 1,200 participating communities? 4. What Next?

14 CRS Communities by State

15 CRS Classes : Geographic Distribution Class 1: City of Roseville, CA Class 2: City of Tulsa, OK King County, WA Class 3: Pierce County, WA Class 4: Charleston County, SC Sacramento County, CA City of Fort Collins, CO Skagit County, WA Snohonish County, WA Source: FEMA (as of 2011)

16 A Positive Trend: CRS distribution of communities across classes & over time % of participating communities CRS Class

17 CRS : Distribution of scores across activities Contribution of each activity (in percentages) to the total mean score Easier activities represent the majority of the scores Class/Series Series 300 Public Information Activities Series 400 Mapping and Regulations Series 500 Flood Damage Reduction Activities Series 600 Warning and Responses Total

18 Number of CRS Communities Rate of Retention (%) Average CRS retention rate is high at 99% Years # dropped # Added % Retention 60 50

19 Years Every year we see progress with communities moving up in classes Movement in CRS classes Number of CRS Communities

20 Outline 1. Linking flood awareness and risk reduction efforts to insurance at the community level: from concept to practice 2. How does the CRS work? 3. What can we learn from 1,200 participating communities? 4. What Next?

21 Still progress needs to be made and FEMA is looking for ways to increase participation and activity level (CRS score). Approximately 18,000 CRS inactive communities would benefit from being more actively involved in the CRS While most active communities participate in a large number of activities (good breadth) the intensity of such participation is generally low (low depth) (next slide)

22 Percentage of Maximum Possible CRS: Intensity of participation c310 c320 c330 c340 c350 c360 c410 c420 c430 c440 c450 c510 c520 c530 c540 c610 c620 c630 CRS Activities

23 CRS: Activity in High-Risk areas