Assessing the Interaction between National Flood Insurance Contracts and Federal Income Assistance Programs
by Jon-Francis Winkles


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Executive Summary

This paper evaluates potential responses to the implementation of long-term flood insurance contracts via the National Flood Insurance Program (NFIP) by looking at the interaction between a long-term contract and various federal income assistance programs over time (targeting primarily low-income households).  While long-term contracts represent a promising strategy capable of restoring the financial condition of the NFIP and adequately spreading and maintaining coverage (which would ideally incentivize the re-entry of private insurers into the market), the outcomes of such a policy remain uncertain due to the fact that nothing of this sort has ever been enacted.  This paper utilizes a model that simulates the costs of a 2-year NFIP contract across income in conjunction with two main events or “cost shocks”: 1) the loss of Temporary Assistance for Needy Families (TANF) benefits during the second year of the contract, and 2) a 10% increase in gross income during the second year of the contract.  Each of these two events will be evaluated with and without the presence of a mitigation mechanism during the second year of the contract.  Results of this simulation show that lower income families will experience exponentially worse outcomes associated with both the loss of TANF and a 10% increase in income.  Incorporating mitigation mechanisms into the contracts will have mixed effects where households receiving less than the full TANF benefit amount will experience smaller returns to mitigation and households experiencing a 10% income increase will see uniform benefits.  While these results avoid concrete policy responses, this paper provides a number of recommendations meant to act as a starting point from which policy alternatives can begin to be evaluated.