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Study determines effects of Community Rating System on flood insurance use, claims

By: Melissa Schneider / Published: Mar 09,  2017

Communities join the National Flood Insurance Program (NFIP) to allow property owners to buy flood insurance. In exchange, they enforce floodplain management regulations to help reduce flood damages. Communities in NFIP can also participate in the Community Rating System (CRS) and receive flood insurance premium discounts for policyholders based on CRS specific activities.

Mississippi State University Environmental Economist Dan Petrolia, GIS Specialist John Cartwright and graduate student Eugene Frimpong worked to determine whether CRS participation had any effect on flood resilience.

Using data about communities in Alabama and Mississippi that are participating in CRS (see Figure 1), they applied statistical methods to model the effect of CRS participation on NFIP participation and flood damage claims.

Figure 1. Map of communities in Mississippi and Alabama that participate in the Community Rating System.
Figure 1. Map of communities in Mississippi and Alabama that participate in the Community Rating System.

Effects of CRS on NFIP participation

Petrolia said his team modeled CRS participation’s effects on NFIP participation by state, time period (pre- and post-Hurricane Katrina) and coastal or non-coastal communities. They controlled for other effects due to year-specific effects, number of households in the community, median community income, education level and community-specific effects.

They separated effects into two time periods: pre-Hurricane Katrina (1994–2005) and post-Hurricane Katrina (2006-2013).

Pre-Katrina

In pre-Katrina Alabama, coastal communities participating in the CRS program had a 64-percent higher NFIP participation on average than communities that did not participate in CRS. Non- coastal communities participating in CRS had significantly lower (14 percent) NFIP participation.

In pre-Katrina Mississippi, researchers found no significant CRS effects in coastal or non-coastal communities.

Post-Katrina

In post-Katrina Alabama, coastal communities participating in the CRS program had on average 90 percent higher NFIP participation based on the number of flood insurance policies in the community. Researchers did not find a significant CRS effect in non-coastal communities.

In post-Katrina Mississippi, coastal communities in the CRS program had an average of 64 percent more NFIP policies in their communities compared to other NFIP communities not participating in
CRS. Researchers found no significant effect of CRS participation on NFIPparticipation in non-coastal communities.

CRS and NFIP participation over time

Across the two states, NFIP participation declines the longer a community is in CRS, the team found. Each year in the CRS program leads to a 5-percent drop in NFIP participation.

“Generally, other researchers find that people ‘forget’ about the risk as the time since the last major storm increases,” Petrolia said. “They tend to let their coverage lapse. So, that could partially explain this result.”

Effects of specific CRS activities on NFIP participation

A community’s overall CRS class (designated as Class 1-10) determines its flood insurance premium discount for residents and businesses. Discounts would be larger in a Class 5 community than in a Class 9 community. The class rating is based on points a community earns for performing certain activities. These activities fall under four general categories: public information (referred to as Series 300), maps and regulation (Series 400), flood damage reduction (Series 500) and warning and response (Series 600).

Overall, the team members found that a 100-point increase in Series 400 (maps and regulation) is associated with 5-percent higher NFIP participation. They found no significant effects of Series 300, 500 or 600 on NFIP participation. (The average number of points earned in Series 400 for 2013 was 648, with a high of 1134.)

Effects of CRS on flood claims

Looking at flood insurance claims (in dollars), researchers found that in Alabama, non-coastal communities that participate in CRS have, on average, 90 percent lower claims. There was no significant effect for coastal communities. In Mississippi, researchers found no significant effects in any communities.

Effects of specific CRS activities on flood damage claims

Researchers found no significant effects of specific CRS series points on flood damage claims across the two states.

“I would not interpret the lack of significance, especially for the damage claims effects, as meaning that certain CRS activities are not helpful,” Petrolia said. “The non-significant findings just mean that, with the data in hand, we cannot say with enough confidence whether there is an effect and how large it is. Perhaps with additional years of data in the future, we may be able to identify these effects better.”

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