Subsidizing Risk : The Regressive and Counterproductive Nature of National Flood Insurance Rate Setting in Massachusetts

In order to evaluate the progressivity of National Flood Insurance Program (NFIP) premiums in a coastal US state that is directly exposed to the impact of climate change- induced sea level rise, this study examines the relationship between the average NFIP premium and the average property values of NFIP insured properties in 331 Massachusetts municipalities. We utilize community level average premium to property value ratio as a measure for comparison. Findings reveal an inverse relationship between insurance premiums paid (as a percentage of property value) and total property value. The greater the average property value, the lower the average premium paid. Conversely, the lower the average property value, the greater the average premium paid. In addition, the study analyzes subsets of municipalities that had certain thresholds of total property in flood prone areas. The strength of the inverse relationship between insurance premiums paid and total property value increases when subsets of municipalities with greater total property value at-risk are analyzed independently. Results suggest current policies in setting flood insurance rates in Massachusetts result in regressive premiums and, as a result, can increase incentives for risk taking