Social Benefits and Costs of the National Flood Insurance Program

This analysis retrospectively examines the National Flood Insurance Program (NFIP) using benefit-cost analysis (BCA). Congress created the NFIP in 1968 to provide flood insurance in part due to the absence of a private market for flood insurance. Since 1994, the NFIP has included a Flood Mitigation Assistance (FMA) program to provide local communities with support for flood mitigation. Together, the NFIP and NFIP programs provide the national flood protection and response strategy. This analysis estimates net social benefit of the NFIP for the years 1996 through 2010. An important element is the estimated consumer surplus for flood insurance using historical financial and survey data available from the NFIP. Using this estimate and other components of net social benefits, this analysis derives a sufficient statistic for the insurance component of the NFIP and is joined with other estimates of the benefits of the FMA to estimate the net social benefits of the combined program. A supplemental analysis is done using different income weighting scenarios in a distributionally weighted BCA. Finally, this study includes an analysis of the change in government revenue attributable to the NFIP and FMA programs. Sensitivity analysis is conducted on all results. This study concludes by finding that the NFIP and FMA programs provided a net benefit to society the years 1996 through 2010. Additionally, the NFIP and FMA are regressive. Finally, this study finds that government revenue experiences a net increase due to the NFIP program