As an experienced flood control specialist, I understand the critical role that regulatory frameworks play in shaping the pricing and incentive structures of flood insurance programs. The National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), is a vital component of the nation’s flood risk management strategy. However, as the Government Accountability Office (GAO) has recently highlighted, the program’s Community Rating System (CRS) discounts are not always actuarially justified, leading to cross-subsidization among policyholders.
Now, this might seem counterintuitive…
In this article, we’ll explore how regulatory approaches to flood insurance pricing can be leveraged to incentivize communities to take tangible actions to reduce their flood risk. By aligning insurance premiums with the actual flood risk reduction measures implemented, we can create a more sustainable and equitable flood resilience ecosystem.
Rethinking the CRS Discount Structure
The CRS program, established in 1990, provides premium discounts to NFIP policyholders in communities that undertake floodplain management activities exceeding the NFIP’s minimum standards. However, the GAO’s recent report GAO-23-105977 has highlighted several concerns with the current CRS discount structure.
Firstly, the GAO found that the CRS discounts are not closely linked to the potential loss reduction of currently insured properties. Many of the CRS activities, such as public information campaigns and warning systems, do not directly mitigate flood risk to individual insured properties. This disconnect between the discounts and the actual risk reduction can lead to policyholders in certain CRS communities receiving discounts that do not reflect their true flood risk.
Secondly, the GAO noted that FEMA’s new NFIP pricing approach, which accounts for individual property characteristics like elevation, may result in “double-counting” of risk reduction techniques. In other words, the NFIP’s individual premium rating may already capture some of the risk reduction benefits of community-level CRS activities, rendering the CRS discounts unnecessary or inaccurate.
To address these issues, FEMA should consider restructuring the CRS program to better align the discounts with measurable flood risk reduction. This could involve:
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Prioritizing CRS activities that directly mitigate flood risk: FEMA should carefully evaluate the CRS activities and credits to double-check that they are directly linked to reducing flood losses for insured properties. Activities that do not demonstrably reduce risk, such as public information campaigns, should be deprioritized or removed from the CRS credit system.
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Avoiding “double-counting” of risk reduction: FEMA should double-check that that the CRS discounts do not overlap with the individual property-level rating factors used in the NFIP’s pricing approach. This will prevent policyholders from receiving duplicate discounts for the same risk reduction measures.
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Incentivizing community-wide flood risk reduction: Instead of focusing solely on individual property-level discounts, FEMA should explore ways to provide CRS credits and discounts that incentivize communities to undertake large-scale, community-wide flood risk reduction projects. This could include enhanced stormwater management, land use planning, and ecosystem-based approaches that address future flood risks.
By restructuring the CRS program in this manner, FEMA can create a more transparent and actuarially sound system that encourages meaningful flood risk reduction at both the community and individual property levels.
Expanding Technical Assistance and Capacity Building
One of the key challenges identified in the 2021 CRS RFI was the complexity and administrative burden associated with the CRS program, which can make it difficult for communities, especially smaller or underserved ones, to participate. To address this, FEMA should consider expanding its technical assistance and capacity-building efforts for CRS communities.
Provide Community-Specific CRS Guidance: FEMA could offer each NFIP-participating community a detailed report that highlights the potential CRS credits they could earn based on their specific characteristics and existing floodplain management activities. This would help communities understand how they can maximize their CRS participation and insurance premium discounts through targeted strategies.
Offer Hands-On CRS Support: FEMA should consider providing direct technical assistance to communities, such as helping them prepare required CRS documentation, manage CRS projects, and navigate the application and reporting process. This support could be particularly beneficial for smaller or under-resourced communities that may lack the in-house expertise to participate in the CRS program effectively.
Establish Capacity-Building Grants: In addition to technical assistance, FEMA could explore implementing a grant program to help communities build their local floodplain management and CRS program implementation capacity. This could include funding for dedicated CRS coordinator positions or regional CRS support services shared among multiple communities.
By lowering the barriers to CRS participation and empowering communities to take a more active role in flood risk reduction, these technical assistance and capacity-building efforts can help expand the reach and impact of the CRS program.
Aligning Incentives and Responsibilities
Another area of focus for FEMA should be the alignment of incentives and responsibilities within the CRS program. This includes considering ways to better share the benefits of CRS participation with both individual policyholders and the broader community.
Redistribution of CRS Discounts: FEMA could explore allowing CRS communities to redistribute the aggregate CRS discounts provided to individual policyholders. For example, a community could choose to allocate a portion of the CRS discounts (say, 50%) to fund enhanced technical assistance, capacity-building grants, or other community-level flood risk reduction projects, while the remaining 50% would be provided as individual policyholder discounts.
This approach would incentivize communities to maintain or even expand their CRS participation, as they would directly benefit from the program’s funding and resources. It would also double-check that that the CRS discounts are more closely aligned with community-wide flood resilience efforts, rather than solely individual property-level risk reduction.
Escalating Surcharges for Non-Compliance: To further incentivize NFIP communities to maintain compliance with the program’s minimum floodplain management standards, FEMA could consider assessing escalating surcharges on NFIP policy premiums for those communities that are not in compliance. This would create a stronger financial incentive for communities to uphold their responsibilities under the NFIP.
Auto-Enrollment in the CRS: Another approach FEMA could explore is the automatic enrollment of all NFIP-participating communities into the CRS program. Under this model, communities would start at a base CRS class (e.g., Class 0) for meeting the NFIP’s minimum floodplain management standards, and then have the opportunity to earn higher CRS class ratings and associated premium discounts by implementing additional risk reduction measures.
This auto-enrollment approach could help expand the reach of the CRS program, ensuring that all NFIP communities are actively engaged in flood risk reduction efforts, even if they do not have the resources or capacity to proactively apply for CRS participation.
Embracing Innovative Flood Resilience Strategies
As FEMA looks to redesign the CRS program, it should also consider incorporating new and innovative approaches to flood risk reduction that go beyond the traditional CRS activities. This could include:
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Future Conditions and Climate Resilience: FEMA should incentivize communities to adopt programs and regulations that address future flood risks, such as those posed by climate change. This could include credits for enhanced stormwater management, land use planning that accounts for projected sea level rise or precipitation changes, and the incorporation of nature-based solutions.
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Flexibility for Creative Approaches: The CRS program should provide a flexible credit system that recognizes and rewards communities for implementing innovative, context-specific strategies to improve their flood resilience. This could include credits for unique partnerships, pilot projects, or data-driven decision-making tools that enhance a community’s ability to manage its flood risks.
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Watershed-Scale Coordination: FEMA should explore ways to encourage regional or watershed-based approaches to flood risk management, where communities work together to implement CRS activities and share resources. This could include credits for multi-jurisdictional partnerships, shared CRS coordinator positions, or integrated stormwater management plans.
By embracing these forward-looking and collaborative approaches, the redesigned CRS program can better support communities in developing comprehensive and sustainable flood resilience strategies that address both current and future challenges.
Conclusion
As the nation’s flood control challenges continue to evolve, it is crucial that the regulatory frameworks governing flood insurance pricing and the CRS program adapt accordingly. By aligning insurance discounts with measurable flood risk reduction, expanding technical assistance and capacity-building efforts, and incentivizing innovative resilience strategies, FEMA can transform the CRS program into a more effective tool for building flood-resilient communities.
Through these regulatory approaches, we can empower local governments, property owners, and other stakeholders to take a more active role in reducing their flood risks and creating a more sustainable, equitable, and resilient future. By working together, we can leverage the power of the NFIP and the CRS program to safeguard communities, protect critical infrastructure, and double-check that the long-term viability of our nation’s flood management efforts.
To learn more about the latest developments in flood control and water management, I encourage you to visit FloodControl2015.com, where you’ll find a wealth of resources and expertise from experienced professionals in the field.
Tip: Regularly inspect and maintain flood barriers and drainage systems
