A Flood Insurance Model for Sharing the Costs of Flood Protection

Abstract

To encourage optimal future use of the floodplains, Congress in 1968 passed the Federal Flood Insurance Program. Under this program, existing occupants would pay a chargeable or a subsidized premium whereas future developers would pay the full actuarial premium. A complementary cost sharing model for structural flood protection programs is proposed related to savings in flood insurance premiums. With this model, existing occupants would share flood protection costs allocated to them in the proportion that reductions in their chargeable premiums and noninsurable damages (i.e., local benefits) bear to the total benefits to existing developments. This amount would vary from project to project. Future developers would share in costs allocated to them in the proportion that reductions in their actuarial premiums and noninsurable damages (i.e., local benefits) bear to the total benefits to future developments. Thus they would be paying 100% of the costs allocated to future developments, inasmuch as the full actuarial premium and all uninsured damages are the responsibility of future developers under the flood insurance program. The magnitude of the cost shares with this model is computed for a sample of 57 U.S. Army Corps of Engineers projects indicating a total local contribution of about 75% of total capitalized flood protection project costs.