Date: July 24, 2015

Community-Based Flood Insurance Offers Potential Benefits, Faces Many Challenges


WASHINGTON -- Community-based flood insurance -- a single insurance policy that in theory would cover an entire community -- may create new opportunities to reduce flood losses and enhance the likelihood of communities paying more attention to flood risk mitigation, says a new report from the National Academies of Sciences, Engineering, and Medicine.  This option for providing flood insurance, however, would not provide the sole solution for all of the nation’s flood insurance challenges. 


Communities already play substantial roles in flood risk management, for example through implementing land-use decisions, building codes, and evacuation plans.  Many communities also participate in the Community Rating System, a voluntary program within the National Flood Insurance Program (NFIP), which offers discounts on premiums to policyholders in communities that undertake actions such as public information and outreach, mapping and regulations, flood damage reduction, and warning and response.


Although it has yet to be implemented, the policy option of community-based flood insurance could increase coverage purchase rates, promote mitigation and floodplain management strategies that reduce risk to individual properties, reduce premiums, and cut down on NFIP administrative costs by issuing collective policies rather than individual ones.


However, the prospects for community-based flood insurance may be compromised if communities are unwilling to participate, have limited administrative capabilities to implement a program, or lack authority to regulate land use and collect revenue, the report notes.  Variations in the size of the population and geographical area that communities represent may also pose challenges.


FEMA defines a community as a “political entity that has the authority to adopt and enforce floodplain ordinances for the area under its jurisdiction.”  Although a city or town would qualify, it is unclear whether the definition could be extended to a neighborhood, a gated community, or a business district.  More explicit definitions will be needed if community-based flood insurance is implemented, the report says.


Any future community-based flood insurance program must also consider who bears the risk; who writes the policy and determines coverage limits and standards; how premium costs are underwritten, priced, and allocated; who accepts the administrative capabilities; how compliance with any mandatory purchase requirements is ensured; and how pricing expertise is used in setting risk-based premiums.


The report points to an economic principle that says if the collective interests of communities and individual residents fully align and are accounted for, then the outcomes will be the same regardless of which group bears responsibility for insurance.  In practice, however, there are several reasons why this may fail to hold, including when some or all residents “free-ride” and don’t buy insurance because they expect post-disaster relief.


The report lists eight such reasons that, depending on the underlying circumstances in a community, can help guide decisions about when community-based flood insurance may be more or less preferable than insuring at the individual level. 


The study was sponsored by the Federal Emergency Management Agency.  The National Academies of Sciences, Engineering, and Medicine are private, nonprofit institutions that provide independent, objective analysis and advice to the nation to solve complex problems and inform public policy decisions related to science, technology, and medicine.  The Academies operate under an 1863 congressional charter to the National Academy of Sciences, signed by President Lincoln.  For more information, visit  A roster follows.



Lauren Rugani, Media Relations Officer

Christina Anderson, Media Relations Assistant

Office of News and Public Information

202-334-2138; e-mail

Twitter: @NAS_news and @NASciences

RSS feed:




#       #       #




Division on Earth and Life Studies

Water Sciences and Technology Board


Division on Engineering and Physical Sciences

Board on Mathematical Sciences and Their Applications


Committee on Community-Based Flood Insurance Options


Henry J. Vaux Jr.

Professor Emeritus of Resource Economics, and

Chair, Rosenberg International Forum on Water Policy

Department of Agricultural and Resource Economics

University of California

Berkeley and Riverside


Patricia Born

Midyette Eminent Scholar of Insurance

Department of Risk Management and Insurance,

Real Estate and Legal Studies

College of Business

Florida State University



Jeffrey Czajkowski

Willis Research Network Fellow

Wharton Risk Management and Decision Processes Center

Wharton School of Business

University of Pennsylvania



Lloyd Dixon

Director and Senior Economist

Center for Catastrophic Risk Management and Compensation

RAND Corp.

Santa Monica, Calif.


Robert Hirsch

Research Hydrologist

U.S. Geological Survey

Reston, Va.


Roger Kasperson1

Research Professor and Distinguished Scientist

Graduate School of Geography

Clark University

Worcester, Mass.


Robert Klein

Associate Professor of Risk Management and Insurance, and

Director, Center of Risk Management and Insurance Research

Georgia State University



Sandra Knight

Senior Research Engineer

Department of Civil and Environmental Engineering

Center for Disaster Resilience

University of Maryland, College Park, and

Founder and President

WaterWonks LLC
Washington, D.C.


David I. Maurstad

Director and Senior Vice President

Optimal Solutions and Technologies Inc.

McLean, Va.


Sally McConkey

Head of the Coordinated Hazard Assessment and Mapping Program

Illinois State Water Survey

University of Illinois



Tommy Wright


Center for Statistical Research and Methodology

U.S. Census Bureau

Washington, D.C.


Richard Zeckhauser2

Frank P. Ramsey Professor of Political Economy

John F. Kennedy School of Government

Harvard University

Cambridge, Mass.




Ed J. Dunne

Study Director




1Member, National Academy of Sciences

2Member, National Academy of Medicine