Insurance Incentives/Disincentives
Case Study:
Overview:
Property or flood insurance can be used in several ways to discourage people from developing in high risk erosion areas and to promote good shoreline management practices. First of all, its important to ensure that waterfront property owners understand the true risk that comes with living in an erosion-prone area. One way to do this is to deny insurance for structures built in high-risk erosion areas. Another tactic, which the Heinz Center recommends in their 2000 study, Evaluation of Erosion Hazards, is to place a mandatory erosion surcharge on flood insurance for properties located in erosion zones. The inability to insure a property or the prospect of a more costly premium may deter development within these high-risk areas or at least deter people from constructing large, expansive, costly structures that would be more difficult to relocate if the need arises.
Insurance incentives are also a way to promote good best management practices (BMPs) to reduce erosion risk. In exchange for implementing approved BMPs on their property, the homeowner could be granted a lower insurance premium. Good BMPs could include siting development beyond the 30 or 50 year erosion rate, maintaining a buffer of natural vegetation along the shoreline, or directing runoff away from the bluff face. State agencies and local governments can work with their insurance commissioner and individual insurance companies to promote these policies.
Benefits: More accurately reflects cost of developing in high risk erosion areas. Promotes good shoreline management practices for homeowners.
Drawbacks: Given the demand for waterfront property, insurance incentives or disincentives may not be enough to discourage development. Good scientific data is needed to determine where the greatest erosion risks are located. Typically, waterfront property owners are not paying significantly more for insurance compared to their non-waterfront neighbors and thus lack a strong incentive to adopt good shoreline management BMPs to receive an insurance discount. Enforcement mechanisms may be needed where property owners fail to follow through on their agreements to implement BMPs.
Case Study:
National Flood Insurance Programs Community Rating System
The National Flood Insurance Program's (NFIP) Community Rating System (CRS) provides incentives for community floodplain management programs to exceed their minimum NFIP requirements. Communities participating in the CRS program receive a discount on their flood insurance premium rates ranging between 5 and 45%. The amount of the discount is dependent on the number of good practices they implement.