CRS: Options for Making the National Flood Insurance Program More Affordable

Many Members and stakeholders have expressed concern about the perceived affordability of flood insurance premiums, concerns which have come to the fore as the Federal Emergency Management Agency (FEMA) introduces a new pricing system known as Risk Rating 2.0. This new rating system, which is designed to move all National Flood Insurance Program (NFIP) policies to risk-based pricing, represents the biggest change to the way the NFIP calculates flood insurance premiums since its inception.1 Nationally, according to FEMA, in the first year 77% of policyholders will see an increase in their premiums and 23% of policyholders will see a decrease under Risk Rating 2.0. 2 These impending rate raises, which vary from $120 to $240 or more annually, have increased congressional interest in reducing the cost burden of flood insurance on policyholders.
The introduction of a means-tested NFIP affordability program has been under consideration by Congress for years. For example, certain bills for reauthorization and reform of the NFIP in the 115th Congress,3 the 116th Congress,4 and the 117th Congress5 have contained provisions to establish an affordability program (see Table 1), as well as other provisions related to making NFIP premiums more affordable. The Build Back Better Act, 6 as passed by the House on November 19, 2021, would have appropriated funding to provide means-tested assistance to certain NFIP policyholders. However, a means-tested affordability program is only one possible way of reducing the cost burden to policyholders, and Congress could consider a range of other options that could reduce the amount that NFIP policyholders have to pay.
A central decision in any reform of the NFIP is who should bear the costs of floodplain occupancy in the future: individual policyholders (the insured), federal taxpayers, uninsured flood victims, or some combination of these. Increases in NFIP premiums under Risk Rating 2.0 may call further attention to the distribution of flood costs as an important policy concern.

CRS: Options for Making the National Flood Insurance Program More Affordable Updated January 6, 2023