An Affordability 

Framework for the 

National Flood Insurance 

Program 

April 17, 2018 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Message from the Administrator
 

I am pleased to submit this Affordability Framework for 

the National Flood Insurance Program (NFIP). 

The Federal Emergency Management Agency (FEMA) 

developed options for an affordability framework for the 

NFIP pursuant to section 9 of the Homeowner Flood 

Insurance Affordability Act (HFIAA) of 2014, Pub. L. No. 

113-89, 128 Stat. 1024. The Administration has submitted 

an affordability proposal that considers the findings and 

analysis in this Affordability Framework. 

FEMA is sending this framework to the following 

Members of Congress: 

The Honorable Mike Crapo 

Chairman, Senate Committee on Banking, Housing, and Urban Affairs 

The Honorable Sherrod Brown 

Ranking Member, Senate Committee on Banking, Housing, and Urban Affairs 

The Honorable Thad Cochran
 

Chairman, Senate Committee on Appropriations 

The Honorable Patrick Leahy
 

Ranking Member, Senate Committee on Appropriations
 

The Honorable Jeb Hensarling
 

Chairman, House Committee on Financial Services
 

The Honorable Maxine Waters
 

Ranking Member, House Committee on Financial Services
 

The Honorable Rodney P. Frelinghuysen
 

Chairman, House Committee on Appropriations 

The Honorable Nita M. Lowey
 

Ranking Member, House Committee on Appropriations 

Please direct inquiries related to this framework to FEMA Congressional Affairs Division at 

(202) 646-4500. 

Sincerely, 

Brock Long 

Administrator 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Preface 

Under the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) Congress sought to 

build a more sound financial framework for the National Flood Insurance Program (NFIP) by 

directing the Federal Emergency Management Agency (FEMA), through the NFIP 

Administrator, to remove the discounts for some policyholders with homes insured by the NFIP, 

so that policyholders would realize flood insurance rates that more accurately reflected their 

expected flood losses. At that time, Congress recognized that removing discounts might cause 

flood insurance to become unaffordable for some households and mandated in BW-12 that 

FEMA study flood insurance affordability. Because of concerns about rising premiums from 

constituents in multiple communities, Congress later passed the Homeowner Flood Insurance 

Affordability Act of 2014 (HFIAA), which rolled back some of the changes implemented under 

BW-12 and recognized additional affordability challenges associated with increased premiums 

required by the BW-12 implementation. HFIAA mandated that FEMA develop an affordability 

framework aimed at providing targeted assistance for policyholders in addition to dealing with 

BW-12 affordability requirements rather than the current approach that primarily provides 

discounted rates to properties based on their date of construction. 

To respond to the congressional mandate, FEMA engaged the broader policy community, 

including academia, and other government agencies to develop an affordability framework. The 

framework presented in this document is the result of FEMA efforts in this area. 

ii 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

An Affordability Framework for the National Flood 

Insurance Program
 

Table of Contents
 Message from the Administrator ..................................................................................................... i
 

Preface............................................................................................................................................. ii
 

Table of Contents........................................................................................................................... iii
 

List of Tables and Figures............................................................................................................... v
 

I.	 Introduction............................................................................................................................... 1
 

Background ....................................................................................................................................1
 

Objective ........................................................................................................................................2
 

Approach to Developing the Affordability Framework .................................................................4
 

Framework Organization................................................................................................................5
 

II. Background on the Cost and Affordability of Flood Insurance Policies .................................. 6
 

Location of Policies........................................................................................................................6
 

Policyholder Costs .........................................................................................................................9
 

Income of Policyholders and Non-policyholders.........................................................................10
 

Methods...........................................................................................................................................10
 

Household Income Inside and Outside High-Risk Areas................................................................11
 

Percentage of Households That Are Low Income...........................................................................12
 

Household Income by Mortgage Status and Source of Flood Risk.................................................13
 

Flood Insurance Affordability......................................................................................................15
 

III. Affordability Framework: Developing a Feasible Set of Flood Insurance Affordability
 

Program Design Options......................................................................................................... 20
 

What We Did................................................................................................................................21
 

Background Research on Developing Flood Insurance Affordability Design Options...................21
 

First Workshop ................................................................................................................................21
 

Second Workshop............................................................................................................................23
 

Design Options for a Flood Insurance Affordability Program............................................................23
 

Program Design 1: Income-Based Premium Sharing.....................................................................23
 

Design Characteristics..................................................................................................................24
 

Advantages and Disadvantages ....................................................................................................26
 

Program Design 2: Premium Burden-Based Benefit......................................................................26
 

Design Characteristics..................................................................................................................27
 

Advantages and Disadvantages ....................................................................................................27
 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Risk Communication....................................................................................................................28
 

Designs 1 and 2 with Income Bins Rather Than Continuous Subsidy ............................................28
 

Program Design 3: Housing Burden-Based Benefit.......................................................................29
 

Design Characteristics..................................................................................................................29
 

Advantages and Disadvantages ....................................................................................................30
 

Risk Communication....................................................................................................................31
 

Program Design 4: Mitigation Grants and Loans............................................................................32
 

Design Characteristics..................................................................................................................32
 

Advantages and Disadvantages ....................................................................................................33
 

Risk Communication....................................................................................................................33
 

Comparison of Program Design Options .....................................................................................33
 

IV. How Policymakers Can Assess the Design Options............................................................... 36
 

Underlying Assumptions for Interpreting Example Findings ......................................................36
 

Design 1: Income-Based Premium Sharing .................................................................................37
 

Design 2: Premium Burden-Based Benefit ..................................................................................39
 

Design 3: Housing Burden-Based Benefit ...................................................................................41
 

V. Administrative and Funding Options...................................................................................... 44
 

Administration Options................................................................................................................44
 

Option 1: IRS Tax Credit .............................................................................................................45
 

Advantages and Disadvantages .......................................................................................................45
 

Option 2: FEMA through NFIP Direct ........................................................................................45
 

Advantages and Disadvantages .......................................................................................................46
 

Option 3: FEMA with Assistance from States and Small Business Administration....................46
 

Advantages and Disadvantages .......................................................................................................47
 

Comparison of Administration Options .......................................................................................47
 

Funding Options...........................................................................................................................48
 

Option 1: NFIP Funded Affordability Program ..............................................................................49
 

Option 2: Congressionally Appropriated Affordability Program....................................................49
 

Option 3. Hybrid Funded Affordability Program............................................................................50
 

VI. Conclusions............................................................................................................................. 51
 

Appendix A. Data and Statistical Methods................................................................................... 53
 

Limitations of ACS Data..............................................................................................................53
 

Matching NFIP and ACS Data.....................................................................................................55
 

Representativeness of Matched Sample.......................................................................................55
 

Income Differences between Different Groups ...........................................................................57
 

Appendix B: Additional Information on Flood Insurance Cost and Household Income ............. 72
 

Number of NFIP Policyholders and Cost of NFIP Policies .........................................................72
 

Policyholder and Non-policyholder Income ................................................................................73
 

Appendix C: Methods Used to Estimate Program Costs .............................................................. 78
 

Cost of Income-Based Premium Sharing.....................................................................................78
 

Cost When Benefits Vary Continuously with Household Income ..................................................78
 

Cost When Benefits Based on Income Bins....................................................................................78
 

Cost of Design 2: Premium Burden-Based Benefit .....................................................................79
 

Cost When Benefits Vary Continuously with Household Income ..................................................79
 

Cost When Benefits Based on Income Bins....................................................................................79
 

Cost of Design 3: Housing Burden-Based Benefit.......................................................................79
 

Cost Design 4: Mitigation Grants and Loans Add-On.................................................................80
 

Appendix D: The Person Identification Validation System (PVS): Applying the Center for
 

Administrative Records Research and Applications’ (CARRA) Record Linkage Software.. 81
 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

List of Tables and Figures 

Table 2.1. Flood Insurance Policies by Extent and Source of Flood Risk...................................... 8
 

Table 2.3. Median Household Income of Policyholders and Non-policyholders (number of 

Table 2.6. Income by Housing Tenure and Mortgage Status (number of households in 

Table 2.8. Flood Insurance Costs as Percentage of Weighted Household Income for Residential 

Table 4.2. Illustrative Scenarios for Program Available Both Inside and Outside SFHA (for 

Table 4.4. Illustrative Scenarios for Burden-Based Benefit Program When Program Available 

Table 4.6. Illustrative Scenarios for Impact of Housing Burden-Based Benefit When Program Is 

Table A.1. Comparison of NFIP Portfolio of Residential Policies with Weighted Sample of
 

Table A.3. Wilcoxon Rank Sum Tests Results, Difference in Income for Households Residing
 

Table A.4. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and 

Table A.5. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and 

Table A.6. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and 

Table B.1. Number of NFIP Policyholders by State, including residential, non-residential 

Table B.2. Average Premiums and Fees for Single Family Homes (for policies in effect in 

Figure B.1. Difference in Median Incomes of ACS Respondents Living In and Out of the SFHA 

Table 2.2. Policyholder Costs for Single-Family Homes (for policies in effect in 2015) .......... 10
 

households in parentheses) ................................................................................................... 11
 

Table 2.4. Income Categories ....................................................................................................... 12
 

Table 2.5. Distribution of Income for Policyholders and Non-policyholders ............................. 13
 

parentheses)........................................................................................................................... 14
 

Table 2.7. Weighted Median Income by Source of Flood Risk in the SFHA ............................. 15
 

Policyholders......................................................................................................................... 16
 

Table 2.9. Ratio of PITI to Household Income for Residential Policyholders ............................ 18
 

Table 2.10. Ratio of PITI to Household Income for Residential Non-policyholders .................. 19
 

Figure 3.1. Illustrative Example of Income-Based Premium Sharing .......................................... 25
 

Figure 3.2. Illustrative Example of Premium Burden-Based Benefit........................................... 27
 

Figure 3.3. Illustrative Example of Housing Burden-Based Premium Benefit ............................ 30
 

Table 3.1. Comparison of Flood Insurance Affordability Program Design Options.................... 34
 

Table 4.1. Illustrative Scenarios for an Income-Based Premium Sharing Program .................... 38
 

program beneficiaries only) .................................................................................................. 39
 

Table 4.3. Illustrative Scenarios for a Premium Burden-Based Benefit Program ....................... 40
 

Both Inside and Outside SFHA (for program beneficiaries only) ........................................ 41
 

Table 4.5. Illustrative Scenarios for a Housing Burden-Based Benefit Program ........................ 42
 

Available to All Policyholders (for program beneficiaries only) ......................................... 43
 

Table 5.1. Summary of Advantages and Disadvantages of Administration Options ................... 48
 

Policyholders......................................................................................................................... 57
 

Table A.2. ACS Household Groups.............................................................................................. 58
 

Inside versus Outside an SFHA (2015), using 95% Confidence Level................................ 58
 

Non-policyholders within an SFHA (2015), using 95% Confidence Level ......................... 62
 

Non-policyholders Outside an SFHA (2015), using 95% Confidence Level....................... 65
 

Non-policyholders (2015), using 95% Confidence Level .................................................... 68
 

business, and other non-residential (2015) ........................................................................... 72
 

2015) ..................................................................................................................................... 73
 

(2014).................................................................................................................................... 74
 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure B.2. Map of Difference in Median Incomes of ACS Respondents Living In or Out of the 

SFHA (2015)......................................................................................................................... 75
 

Figure B.3. Household Incomes for ACS Respondents Living inside the SFHA (2015, includes 

Figure B.4. Household Income for ACS Respondents Living outside the SFHA (2015, includes 

both policyholders and non-policyholders) .......................................................................... 76
 

both policyholders and non-policyholders) .......................................................................... 77
 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

I. Introduction 

Background 

The Federal Emergency Management Agency (FEMA) administers the National Flood Insurance 

Program (NFIP), a federally operated insurance program created by the National Flood Insurance 

Act of 1968. The NFIP is a voluntary program that enables property owners in participating 

communities to purchase insurance protection against losses from flooding. The NFIP collects 

premiums and fees from its policyholders and pays claims to those policyholders for costs 

associated with covered flood damages.1 The NFIP provides discounts for some insured homes 

and the discounts are aimed at making flood insurance more affordable, but those discounts are 

not delivered based on need or ability to pay. These discounts, combined with several large loss 

years, contributed to revenue shortfalls and resulted in NFIP borrowing to pay claims in several 

instances. These factors caused the NFIP to be $20.525 billion in debt to the U.S. Treasury as of 

April, 2018. 

In response to the debt accumulated largely from Hurricanes Rita, Wilma and Katrina in 2005, 

Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012, (BW-12).2 BW-12 

focused on strengthening the NFIP’s fiscal soundness and required FEMA to eliminate subsidies 

for some types of policyholders and to move further toward risk-based pricing of policies.3 

Through risk-based pricing, FEMA can communicate the risk of flooding by charging higher 

premiums in areas where the risk of flooding is greater. BW-12 also required FEMA to charge 

additional fees to policyholders to cover other program costs. As a result of this transition to 

higher rates and increased fees, premiums rose, and resulted in public concern that the prices 

stemming from BW-12 were unaffordable.4 Congress reevaluated the rate increases as a result of 

the public concern and subsequently passed the Homeowner Flood Insurance Affordability Act 

of 2014, (HFIAA).

5 HFIAA rolled back some of the changes resulting from BW-12 and focused 

greater attention on the issue of flood insurance affordability. Congress was concerned that as 

NFIP rate discounts phased out, flood insurance premiums would become increasingly 

unaffordable and higher premiums would create financial hardship for some households, 

discouraging participation in the program. FEMA notes that despite higher fees, flood insurance 

claim payments may not cover the full replacement cost of housing damaged by flood disasters 

and those policyholders may have to rely on individual assistance and loans after a disaster. 

BW-12 directed FEMA to examine options to aid individuals so they could afford risk-based 

premiums under the NFIP utilizing targeted assistance for policyholders rather than generally 

1As of May 31, 2017, there were approximately five million policies insuring approximately $1.2 trillion in assets. 

2

Public Law 112-141, Div. F, Title II, Subtitle A. 

3

Prior to BW-12, approximately 80 percent of policies were risk-based. 

4The HFIAA surcharge is $25 for primary residences and $250 for second homes. Under HFIAA, annual premium 

increases are capped at 18 percent for primary residences and 25 percent for secondary homes. On average, the 

increase was around 9 percent (Aon National Flood Service, 2016). 

5

Public Law 114-89. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

subsidized rates, including means-tested vouchers.6 In addition, HFIAA required FEMA to 

develop an affordability framework to help policymakers consider the impact of implementing 

risk-based premiums and determine how to provide targeted policyholder assistance rather than 

discounted rates across the entire NFIP portfolio. 

Section 9 of HFIAA required FEMA to examine options and consider the following criteria: 

1.	 Accurate communication to consumers of the flood risk associated with their properties; 

2.	 Targeted assistance to flood insurance policyholders based on their financial ability to 

continue their participation in the NFIP; 

3.	 Individual or community actions that mitigate or lower the cost of flood insurance; 

4.	 The impact of increases in risk premium rates upon participation in the NFIP; 

5.	 The impact flood insurance rate map updates will have on the affordability of flood 

insurance.7 

Objective 

This study’s objective is to respond to HFIAA’s direction for FEMA to develop an affordability 

framework proposing programmatic and regulatory changes that address affordability of flood 

insurance. As such, FEMA primarily focused on parts (1), (2), and (3) of the HFIAA statutory 

considerations cited above. FEMA retains a significant body of work focusing on considerations 

(4) and (5) cited above, and we incorporated knowledge gained from this work throughout the 

framework.

8 In addition, for the purposes of this framework, FEMA did not consider the effect 

of future rate changes on affordability, as FEMA is generally reconsidering the rating structure 

of the NFIP under its Risk Rating Redesign effort. After implementing Risk Rating Redesign, the 

6

Section 100236 of Biggert-Waters Flood Insurance Reform Act of 2012, Pub. L. 112-141 (July 6, 2012) directed 

the Administrator to conduct a study of “(1) methods to encourage and maintain participation in the National Flood 

Insurance Program; (2) methods to educate consumers about the National Flood Insurance Program and the flood 

risk associated with their property; (3) methods for establishing an affordability framework for the [NFIP], including 

methods for individuals to afford risk-based premiums under the [NFIP] through targeted assistance rather than 

generally subsidized rates, including means-tested vouchers; and (4) the implications for the [NFIP] and the Federal 

budget of using each such method”. See Id. at (a)(3)-(4). Under subsection (b), to inform the Administrator in the 

conduct of the study under subsection (a)’s study, Congress directed the Administrator “to enter into a contract 

under which the National Academy of Sciences, in consultation with the Comptroller of the United States, shall 

conduct and submit to the Administrator an economic analysis of the costs and benefits to the Federal Government 

of a flood insurance program with full risk-based premiums, combined with means-tested Federal assistance to aid 

individuals who cannot afford coverage, through an insurance voucher program. The analysis shall compare the 

costs of a program of risk-based rates and means-tested assistance to the current system of subsidized flood 

insurance rates and federally funded disaster relief for people without coverage.” The Administrator was directed to 

report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial 

Services of the House of Representatives. 

7 Section 9 of the Homeowner Flood Insurance Affordability Act of 2014, Pub. L. 113-89 (Mar. 21, 2014) directed 

the Administrator to prepare a draft affordability framework and to submit the draft affordability framework to 

the full Committee on Banking, Housing, and Urban Affairs and the Committee on Appropriations of the Senate 

and the full Committee on Financial Services and the full Committee on Appropriations of the House of 

Representatives. 

8

Our data indicates that when prices of insurance increase, participation in the NFIP will decline, regardless of 

whether this price change is because of map updates or premium and fee increases. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

NFIP will be able to determine risk-based premiums more accurately; some rates will increase 

while others may decrease. Rate increases could cause additional affordability challenges for 

policyholders who are already burdened by the cost of their flood insurance, as well as for 

potential policyholders. These challenges will be particularly salient for policyholders who 

currently receive discounts and subsidies. 

Considerations in Developing the Affordability Framework 

Affordability is a general concept used to address the concern that policyholders may not be able 

to afford their flood insurance premiums from rate increases—neither BW-12 nor HFIAA 

provided a definition of flood insurance affordability.

9 Thus, in the process of developing the 

affordability framework, FEMA solicited guidance from other federal agencies in late 2016 on 

how to define affordability in the flood insurance context. Based upon their feedback and our 

insights, we defined the concept of affordability from a cost burden or “ability to pay” 

perspective. Therefore, households applying for assistance face a means test to determine 

whether they qualify for benefits. 

We included several other key considerations as we developed the framework: 

	 Flood insurance is the best way for a household to recover from a flood. Insured 

survivors recover more quickly and more fully than uninsured survivors, who often rely 

on federal disaster assistance and charity in order to recover; 

	 Targeting potential policyholders in addition to current policyholders for assistance could 

increase the number of property owners who want to purchase Federal flood insurance; 

	 Price is one of the best signals of risk that a consumer receives; any affordability 

assistance should be delivered with communication of the policyholder’s full-risk, nondiscounted rate; 

	 Any affordability program developed based on the framework that is funded by NFIP’s 

current premiums and fees reduce the NFIP’s ability to cover the cost of certain flood 

events, while creating additional affordability challenges, and work counter to our goal of 

creating a sound financial framework; and 

	 We discuss the definitions of affordability emerging from our work at the end of Chapter 

2, and apply those definitions in developing the options in Chapter 3, and quantitatively 

illustrate the impacts of those options on affordability in Chapter 4. 

9

HFIAA suggests that premiums are unaffordable if the premium exceeds 1 percent of the policy coverage limit. 

However, the premium-to-coverage ratio has no means test associated with it. For example, a $100,000 property 

with $100,000 of coverage paying $1,000 for insurance would appear to be equally burdened as a $1,000,000 

property with $250,000 of coverage paying $2,500 for insurance. The latter property owner may not face a cost 

burden when deciding whether to purchase $2,500 per year flood insurance policy. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Approach to Developing the Affordability Framework 

In responding to HFIAA to develop an affordability framework, we took a multi-prong approach 

involving both qualitative and quantitative analyses. In essence, FEMA completed three tasks: 

1.	 To better understand affordability of the current NFIP portfolio as a baseline to 

understand the impact of changes going forward. There has been very little 

nationwide analysis of flood insurance affordability because policyholder data on 

incomes and incomes of households in high-risk flood zones were largely unavailable. To 

fill this gap, FEMA developed an agreement with the U.S. Census Bureau (Census) to 

use data from the American Community Survey (ACS) to assess the incomes and housing 

expenses of NFIP policyholders and non-policyholders.10 Specifically, FEMA conducted 

a series of analyses at the Census including the following: (1) FEMA analyzed how ACS 

respondents intersect with the Special Flood Hazard Area (SFHA) using the National 

Flood Hazard Layer (NFHL) to determine whether there were differences in incomes 

between those who live in the SFHA and those who live out of the SFHA; (2) FEMA and 

Census matched the NFIP policyholder data with ACS respondent data; and (3) FEMA 

conducted a number of exploratory analyses to build an understanding of the differences 

between policyholders and potential policyholders, differentiating by flood risk, income, 

and mortgage status. 

2.	 To begin the process of building the affordability framework. This first part of that 

process was qualitative and involved engaging a broader policy community including 

academia, and other government agencies during two workshops to develop a series of 

flood insurance affordability program design options including administrative and 

funding options for the design options. The second part of the process was to 

qualitatively assess the administrative and funding options. 

3.	 To complete the process of building an affordability framework. To complete this 

task, FEMA used Census data from Task 1 and the different affordability options that 

emerged from Task 2 to illustrate the scope and cost of the affordability options. The goal 

included showing how policymakers could use the framework and provide cost estimates 

of different program options. We selected parameters to show the range of possibilities to 

complete the examples. The examples we produce are merely illustrative. To use the 

framework to estimate actual costs and impacts on affordability, policymakers need to 

select specific parameters to model. 

10The U.S. Census Bureau (Census) is part of the U.S. Department of Commerce (Commerce) and is overseen by the 

Economics and Statistics Administration (ESA) within Commerce. The Economics and Statistics Administration 

provides high-quality economic analysis and fosters the missions of the Census and the Bureau of Economic 

Analysis. FEMA’s use of Census data is subject to this agreement, the Freedom of Information Act (FOIA), 5 

U.S.C. § 552, as amended, the Privacy Act of 1974, 5 U.S.C. § 552a and any other applicable laws or regulations. 

The ACS is a household survey developed by Census to replace the long form of the decennial census program. The 

ACS is a large demographic survey collected throughout the year using mailed questionnaires, telephone interviews, 

and visits from Census field representatives to about 3.5 million household addresses annually. Starting in 2005, the 

ACS produced social, housing, and economic characteristic data for demographic groups in areas with populations 

of 65,000 or more. (Prior to 2005, the estimates were produced for areas with 250,000 or more population.) The 

ACS also accumulates sample over 5-year intervals to produce estimates for smaller geographic areas, including 

census tracts and block groups. 

4 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

We include more discussion of the qualitative and quantitative approaches in the chapters that 

follow. 

Framework Organization 

We have organized the framework around the three tasks discussed above: 

	 Chapter 2 provides the results from Task 1 of using the quantitative data we developed to 

provide context and a baseline of affordability across the NFIP portfolio. 

	 Chapter 3 provides the results of the qualitative process of using workshops to develop a 

series of flood insurance affordability program design options that FEMA deemed 

feasible (first part of Task 2). 

 Chapter 4 provides the results of using the quantitative data to illustrate examples of the 

scope and cost of the affordability options described in Chapter 3 (Task 3). 

 Chapter 5 provides the workshop results for the administrative and funding options for 

the affordability designs (second part of Task 2). 

 Finally, Chapter 6 provides conclusions based on our findings. 

The framework also includes four appendices: 

 Appendix A: Data and Statistical Methods;
 

 Appendix B: Additional Information on Flood Insurance Cost and Household Income;
 

 Appendix C: Methods Used to Develop Costs of Program Design Options;
 

 Appendix D: The Person Identification Validation System (PVS): Applying the Center
 

for Administrative Records Research and Applications’ (CARRA) Record Linkage 

Software. 

5 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

II.	 Background on the Cost and Affordability of Flood 

Insurance Policies 

Previous discussions around flood insurance affordability have been largely anecdotal rather than 

driven by data analysis because FEMA does not collect data on policyholder incomes required to 

analyze this topic sufficiently. We initiated the agreement with Census that allowed us to begin 

analyzing the issues around flood insurance affordability concerns using data-driven approaches. 

Based on matched analysis of the Census and FEMA data, we found the following: 

	 Policyholders tend to have higher incomes than non-policyholders, especially in the 

highest risk areas. This suggests that policymakers should pay particular attention to the 

affordability of flood insurance for households that currently do not have flood insurance 

but face flood risk. 

	 About 26 percent of NFIP residential policyholder households inside Special Flood 

Hazard Areas (SFHAs) are low income and 51 percent of non-policyholder households in 

SFHAs are low income, as defined by the United States Department of Housing and 

Urban Development, (HUD). 

	 Flood insurance premiums tend to be lower and household incomes tend to be higher 

outside SFHAs, so affordability is less of a problem outside SFHAs. However, there 

remain a significant number of households outside SFHAs for which affordability is an 

issue. 

	 About 49 percent of policyholders in SFHAs who own their homes spend less than 1 

percent of household income on flood insurance. Although this statistic is a useful 

reference point, there currently is no rational basis to determine when the purchase of 

flood insurance becomes burdensome based on the percentage of income spent on flood 

insurance. 

	 The ratio of mortgage principal and interest payments, property taxes, and insurance 

(including flood insurance), or Principal, Interest, Taxes, Insurance (PITI), to household 

income exceeds 0.4 for approximately 12 percent of homeowners with flood insurance 

policies in SFHAs. The lending industry typically considers housing to be unaffordable 

when the PITI ratio exceeds 0.4. The PITI ratio provides a basis for defining when flood 

insurance becomes unaffordable. 

 Incomes of homeowners with mortgages are higher than incomes of homeowners without 

mortgages. 

 The affordability of flood insurance represents a challenge for a greater number of 

households as FEMA moves closer to risk-based rates for currently discounted policies. 

Please find the support for FEMA’s findings in the remainder of this chapter. 

Location of Policies 

Figure 2.1 illustrates FEMA’s analysis of 2015 NFIP data, highlighting the presence of 

policyholders in every state and emphasizing states with the highest counts of policyholders. 

FEMA included any policyholder with an active insurance contract in 2015 for this analysis; 

6 
 

 

 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

yielding 4.8 million policies nationwide.

11 The majority of states had under 100,000 

policyholders in 2015, while several Atlantic coast states had between 100,000 and 200,000 

policyholders. California had around 300,000 policyholders, while Texas and Louisiana had a 

larger number of policyholders, ranging from 500,000 to 700,000. Florida had the largest number 

of policyholders at almost 1.5 million. 

See Table B.1 in Appendix B for counts of NFIP policies by state in 2015. 

11For this analysis, hereafter, NFIP “policies” actually refer to contracts in force. FEMA differentiates between 

contracts in force and policies in force for multi-unit structures. An insured structure counts as one contract in force, 

but if that structure has multiple units that are covered under one contract, each unit is counted as a policy. 

Therefore, a 100-unit condominium complex essentially counts as one contract but 100 policies. As explained in the 

appendices, FEMA does not keep a list of each policyholder in a multi-unit structure, only the name on the master 

policy for these structures. For FEMA and Census data matching purposes, FEMA used contracts rather than 

policies, but refers to them here as policies for simplicity. 

7 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure 2.1. Number of Flood Insurance Policies in the U.S. by State (2015) 

SOURCE: FEMA analysis of NFIP policyholder data. 

As shown in Table 2.1, the 4.5 million residential policies are nearly evenly divided between 

areas inside and outside the SFHA. However, the majority of nonresidential policies reside inside 

the SFHA. FEMA identifies those parts of the county comprising high-risk floods zones as 

Special Flood Hazards Areas (SFHA). The SFHA are those areas where there is a 1 percent 

annual chance of flooding. From the perspective of flood insurance affordability, SFHAs are 

relevant because flood insurance premiums are generally higher in SFHAs and flood insurance is 

mandatory for households with federally backed loans in these areas. 

Table 2.1. Flood Insurance Policies by Extent and Source of Flood Risk 

Residential Non-Residential 

Number Number Flood Zone Percent Percent (thousands) (thousands) 

In SFHA 2,359 52% 227 69% 

Outside SFHA 2,150 48% 104 31% 

Total 4,508 100% 330 100% 

SOURCE: FEMA analysis of NFIP policyholder data.
 

NOTE: In this table and throughout the framework, FEMA calculated column totals based on the raw
 

data from each row, then rounded each individual row and the column total for ease of reporting. As a
 

result, column totals may differ slightly from the sum of each reported row. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Policyholder Costs 

Approximately 90 percent of the 4.5 million residential NFIP policies are for single-family 

homes. Table 2.2 summarizes the distribution of policy costs for these 4.1 million properties. 

Costs include both premiums and fees, with fees on average accounting for about 15 percent of 

total policyholder costs.12 As can be seen in Table 2.2, policyholder costs for single-family 

homes average $1,098 inside SFHAs and $492, or less than half, outside the SFHA. The amounts 

policyholders paid varied considerably, with one-quarter of households in SFHAs paying more 

than $1,376 (the 75th percentile) and one-quarter paying less than $496 (the 25th percentile). 

These costs reflect the amount of coverage and the deductibles selected by policyholders. They 

also reflect any premium reductions because of grandfathering, pre-flood insurance rate map 

(pre-FIRM) subsidies, and Community Rating System (CRS) discounts.13 The median and 

average can both represent the typical cost for a policyholder; however, extreme values do not 

affect the median as much as the average. The median, used throughout this framework, 

represents the middle value of the distribution of costs—roughly half of policyholders pay more 

than the median and half pay less than the median. Median policy costs are $738 and $439, 

respectively, inside and outside the SFHAs. 

Table B.2 in Appendix B contains more information on the breakdown of policyholder costs into 

premiums and fees. 

12HFIAA was passed in March 2014 and FEMA did not begin collecting the HFIAA surcharge until April 2015. As 

a result, some policies used in this analysis pre-dated FEMA collecting the HFIAA surcharge. For the purposes of 

this analysis, to ensure that policy costs more accurately reflect the NFIP’s current fee structure, we added the 

HFIAA surcharge ($25 for primary residences and $250 for non-primary residences) to those policies missing a 

HFIAA surcharge. 

13Grandfathering is a discount that allows properties constructed prior to being identified and mapped into a higher 

flood risk zone to keep their previous rates. Pre-FIRM subsidies are a discount provided to properties that were 

constructed or had substantial improvement on or before December 31, 1974 or before the effective date of an initial 

flood insurance rate map (FIRM). The CRS is a program developed by FEMA to provide incentives for those 

communities in the program that have gone beyond the minimum floodplain management requirements to develop 

extra measures to provide protection from flooding. CRS communities are eligible for certain flood insurance rate 

discounts. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 2.2. Policyholder Costs for Single-Family Homes 

(for policies in effect in 2015) 

In SFHA Outside SFHA Total 

5th Percentile $329 $296 $308 

25th percentile $496 $415 $437 

Median $738 $439 $485 

Average $1,098 $492 $800 

75th percentile $1,376 $485 $822 

95th percentile $2,922 $738 $2,328 

Number of policies 2,062,274 2,000,729 4,063,003 

SOURCE: FEMA analysis of NFIP policyholder data.
 

NOTE: Includes premiums and fees and all single-family homes whether owner-occupied or not.
 

Income of Policyholders and Non-policyholders 

In this section, we provide an overview of the incomes of policyholders and non-policyholders 

inside and outside the SFHAs across the country. Policyholder income is an essential input into 

characterizing flood insurance affordability as we have defined it. 

Methods 

FEMA worked with Census to determine the income for a sample of NFIP policyholders and 

non-policyholders inside and outside the SFHA. We matched information from the ACS on 1.9 

million households to NFIP policy data using the identity of the policyholder (which includes 

name and Social Security Number) and location. Overall, we found matches for approximately 

65,000 of the 4.5 million residential policyholders. We used the ACS sampling rates to 

extrapolate findings for the matches back to the overall population of NFIP policyholders. We 

based our analysis in this chapter and Chapter 4 on the resulting 3.7 million NFIP policyholder 

households and 104.4 million non-policyholder households. 

The technique we used to match NFIP policyholder and Census data yielded around 3.7 million 

policyholders for the analysis, which is less than the 4.5 million residential policyholders shown 

in Table 2.1. There are a number of reasons for this difference. For example, NFIP-insured, 

renter-occupied properties would not likely be represented in the data; if the landlord is a 

business, it would not be included in our sample because businesses are not included in the ACS. 

Also, if the landlord is an individual, the property would not be included because the landlord 

(who might be in the ACS) is not the same as the occupant. Similarly, Residential Condominium 

Building Association Policies (RCBAP) would not be included because the policyholder is 

typically a condominium association, which is not a part of the ACS.14 Conversely, contents-only 

policies purchased by renters and policies purchased by individual condominium unit owners 

would be represented. Table A.1 in Appendix A summarizes how the weighted sample of NFIP 

14An RCBAP can cover the structure of an entire residential condominium building (and all the individual units in 

it). 

10 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

policyholders we used in this analysis compares with the full set of NFIP residential policies. In 

addition to having a lower number of single-family homes in the weighted sample than in the 

NFIP policy database, the percentage of single-family homes is higher in the sample than for the 

full set of NFIP policies. Please see Appendix A for additional information. 

We believe this properly interpreted data are sufficient to analyze options for an NFIP 

affordability program, illustrated in Chapter 4. 

Household Income Inside and Outside High-Risk Areas 

Generally, incomes are higher outside the SFHA than they are inside the SFHA, as shown in the 

last row of Table 2.3. The combination of higher premiums and lower incomes in the SFHA 

creates affordability pressure on households. There is some variation across states in the relation 

between income inside and outside the SFHA, and as shown in Figure B.1 in Appendix B, 

median income is higher inside the SFHA than outside of it for a handful of states. 

The results become more clear and stark when we separate policyholders and non-policyholders 

in the sample. As shown in the first row of the Table 2.3, the median household income for 

residential policyholders is $82,000, although it is substantially lower in the SFHA than outside 

the SFHA. Similarly, median income for households that do not have flood insurance is lower in 

the SFHA than outside the SFHA. 

Table 2.3. Median Household Income of Policyholders and Nonpolicyholders (number of households in parentheses) 

In SFHA Outside SFHA Total 

Policyholders $77,000 

(1.8 M) 

$88,000 

(1.9 M) 

$82,000 

(3.7 M) 

Non-policyholders $40,000 

(3.3 M) 

$56,000 

(101.1 M) 

$55,000 

(104.4 M) 

All Households $50,000 

(5.1 M) 

$57,000 

(103.0 M) 

$56,000 

(108.1 M) 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

NOTE: Data weighted using ACS sample weights. Median income rounded to 

nearest $1,000; number of households rounded to nearest 100,000; M = millions 

As can be seen by comparing the first two rows in Table 2.3, policyholders tend to have higher 

incomes than households that currently do not carry flood insurance. In particular, the median 

income of the 3.3 million non-policyholders in the SFHA ($40,000) is $37,000 less than the 

median income of the 1.8 million policyholders in the SFHA ($77,000). Complicating the 

comparison of policyholder and non-policyholder incomes are the difference in the percentages 

of renters in each group. However, as we will see when we discuss the results in Table 2.6 

below, the incomes of policyholders remain higher than that of non-policyholders even when 

comparing only homeowners or only renters, respectively. 

Median income is higher for policyholders than non-policyholders in all states and the magnitude 

of the difference varies considerably (Figures B.3 and B.4 in Appendix B). Findings on the 

relative incomes of policyholder and non-policyholders suggest that policymakers should pay 

11 
 

 

 

 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

particular attention to the affordability of flood insurance for households that currently do not 

have flood insurance. 

Percentage of Households That Are Low Income 

Low-income households endure the greatest difficulty affording flood insurance, and we use 

income categories based on Area Median Income (AMI) to identify the number of low-income 

policyholders and non-policyholders (Table 2.4). The advantage of basing income categories on 

AMI, as opposed to the Federal Poverty Level (FPL), is the AMI accounts for incomes and the 

considerable cost of living variance across the country, while the FPL does not.15 HUD defines 

low-income households as those with income less than 80 percent of AMI, with three categories 

within low income shown in bold Table 2.4.16 Cutoffs for higher-income groups vary, and for 

illustration, we use values from New York City housing assistance programs.17 We refer to 

households with income over 165 percent AMI as higher income households. 

Table 2.4. Income Categories 

Household Income Cutoff Terminology 

<= 30% of AMI Extremely low income 

>= 30% and < 50% of AMI Very low income 

>= 50% and < 80% of AMI Low Income 

>= 80% and < 120% of AMI Moderate income 

>= 120% and <= 165% of AMI Middle income 

> 165% AMI Higher income 

NOTE: Low income categories highlighted in bold; AMI = Area Median Income. 

Summing the first three rows of Table 2.5 reveals that around: 

 26 percent of policyholders inside the SFHA are low income. 

 21 percent of policyholders outside the SFHA are low income. 

 51 percent of non-policyholders in the SFHA are low income. 

 41 percent of non-policyholders outside the SFHA are low income. 

15For example, AMI for a four-person household in Tampa, Florida, is $41,000. In New York City the AMI for a 

four-person household is $71,000. 

16See https://www.huduser.gov/portal/datasets/il.html 

17The 120 percent of AMI is the maximum income threshold for New York City’s Housing Development Fund 

Corporation cooperative program (see https://www1.nyc.gov/assets/hpd/downloads/pdf/Owners/hdfc-coopregulatory-agreement-faq.pdf). The 165 percent of AMI is the maximum income threshold for a handful of other 

programs targeted at moderate-to middle-income households (see http://www.nychdc.com/pages/IncomeEligibility.html). 

12 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 2.5. Distribution of Income for Policyholders and Non-policyholders 

Policyholders Non-policyholders 

Outside Outside All In SFHA In SFHA SFHA SFHA Households 

Extremely low income 6% 4% 16% 12% 12% (<= 30% AMI) 

Very low income 7% 6% 16% 12% 12% (31 to 50% AMI) 

Low income 13% 11% 19% 17% 17% (50 to 80% AMI) 

Moderate income 18% 16% 19% 19% 19% (81 to 120% AMI) 

Middle income 17% 16% 12% 16% 15% (121 to 165% AMI) 

Higher income 39% 47% 17% 24% 25% (> 165% AMI) 

100% 100% 100% 100% 100 Total (1.8 M) (1.9 M) (3.3 M) (101.1 M) (108.1 M) 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

NOTE: Data weighted using ACS sample weights. Number of households in parentheses; M = millions
 

Household Income by Mortgage Status and Source of Flood Risk 

One of the flood insurance affordability measures developed in this framework considers total 

housing costs, including mortgage and interest payments, relative to income (PITI). Using the 

PITI approach would result in policyholders or prospective policyholders with mortgages being 

more likely eligible for assistance programs based on this measure of affordability. As a result, 

the incomes for households with and without mortgages are relevant to evaluating different 

affordability programs. 

As can be seen from the top two rows in Table 2.6, the median income of homeowners with 

mortgages is substantially higher than for homeowners without mortgages. The pattern holds 

whether inside or outside the SFHA and for both policyholders and non-policyholders. 

Policyholders have higher median incomes than non-policyholders, regardless of their 

homeownership status. In the SFHA, more non-policyholders own their homes outright than 

have mortgages; they also reflect significantly lower incomes than their policyholder 

counterparts. This finding supports our extensive anecdotal evidence that there is a significant 

population in the SFHA of lower-income families who have either inherited their homes or are 

retirees who are particularly sensitive to the financial burden of flood insurance. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 2.6. Income by Housing Tenure and Mortgage Status 

(number of households in parentheses) 

Policyholders Non-policyholders 

Outside Outside In SFHA In SFHA SFHA SFHA 

Homeowners 

Homeowner has $85,000 $104,000 $66,000 $83,000 

mortgage (1.1 M) (1.0 M) (661,000) (41.5 M) 

Homeowner does $70,000 $74,000 $40,000 $49,000 

not have mortgage (388,000) (657,000) (1.0 M) (23.8 M) 

Renters 

Renters who pay $52,000 $61,000 $34,000 $36,000 

rent (253,000) (191,000) (1.5 M) (33.8 M) 

Space occupied $36,000 $40,000 $25,000 $28,000 

without rent (22,000) (20,000) (103,000) (1.9 M) 

Total Households (1.76 M) (1.89 M) (3.26 M) (101.0 M) 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

NOTE: Data weighted using ACS sample weights; median income rounded to nearest 

$1,000; number of households rounded to nearest 100,000; M = millions 

As can be seen in the table above, renters have different income and expense profiles than 

homeowners. Comparing the number of households in the first two rows and second two rows of 

Table 2.6 show that 13 percent of policyholders are renters and 36 percent of non-policyholders 

are renters.18 As expected, the results show that the median household incomes of renters are 

considerably lower than that for homeowners. In addition, in keeping with our previous analyses 

and findings in Tables 2.3 and 2.6, the incomes of policyholders tend to be higher than the 

incomes of non-policyholders, even when controlling for housing tenure (homeowner versus 

renter). 

To determine whether incomes are higher in areas subject to coastal flooding—an issue often 

considered by FEMA—we classified the source of flood risk facing households in SFHAs as 

either coastal or noncoastal using our matched NFIP and Census data.

19 Table 2.7 compares 

median household income of the two groups and shows median income is higher for 

policyholders and non-policyholders exposed to coastal risk for both homeowners and renters. 

However, the income differences by source of flood risk are not sizeable compared, for example, 

to the differences in income between mortgage holders, outright homeowners, and renters. 

18For reference, 1.3 million of the 1.9 million responses in the ACS (raw data), or 68 percent, are homeowners. We 

used the calculation of (0.49M/3.63M) for policyholder renters and (37.3/104.3M) for non-policyholder renters. 

19Mark Crowell, Kevin Coulton, Cheryl Johnson, Jonathan Westcott, Doug Bellomo, Scott Edelman, and Emily 

Hirsch (2010) An Estimate of the U.S. Population Living in 100-Year Coastal Flood Hazard Areas. Journal of 

Coastal Research: Volume 26, Issue 2: pp. 201 – 211. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 2.7. Weighted Median Income by Source of Flood
 

Risk in the SFHA
 

Policyholders Non-policyholders 

Homeowners 

$85,000 $51,000 Coastal (876,000) (671,000) 

$78,000 $48,000 Riverine (623,000) (1.0 M) 

Renters 

$52,000 $36,000 Coastal (156,000) (758,000) 

$48,000 $31,000 Riverine (119,000) (869,000) 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS 

data. 

NOTE: Data weighted using ACS sample weights; number of 

households in parentheses; Median income rounded to nearest 

$1,000; number of households rounded to nearest 100,000. 

Flood Insurance Affordability 

To develop the affordability framework, FEMA solicited guidance from other federal agencies 

on how to define affordability in a flood insurance context (please see Chapter 3). Based on this 

feedback and our own insights, we considered three different concepts of affordability in 

developing our flood insurance affordability framework: 

1.	 Flood insurance is considered unaffordable based strictly on household income. A 

program based on this definition of affordability provides a benefit if a household’s 

income falls below a certain threshold. Several federal programs use income as a measure 

for means-tested social assistance in their applications. 

2.	 Flood insurance is considered unaffordable when the cost of insurance exceeds a 

specified percentage of household income. For example, flood insurance might be 

considered unaffordable when the household needs to spend more than 1 percent of its 

income on flood insurance. 

3.	 Flood insurance is considered unaffordable if the housing burden (including flood 

insurance) is more than a specified percentage of income. HUD uses the concept of 

housing burden based on income in its rental assistance programs. For homeowners, 

housing burden consists of mortgage principal and interest (PI), property taxes (T), and 

insurance (including flood insurance—I), or PITI. For renters the housing burden is 

defined as of the ratio of rent plus insurance (typically contents insurance) to household 

income. FEMA would consider flood insurance unaffordable if flood insurance causes 

the ratio of PITI to income to exceed 0.30 to 0.40—cutoffs that are taken from both HUD 

and private mortgage industry standards. 

4.	 The following two tables provide an overview of how current NFIP policyholders rank 

according to the second and third measures: 

15 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

The top half of Table 2.8 shows the percent of income that homeowners that purchase flood 

insurance spend on it. Around 49 percent of policyholders inside SFHA spend less than 1 percent 

of their annual income on flood insurance, including both premiums and fees. The remaining 51 

percent of homeowners inside SFHA spend more than 1 percent of household income on flood 

insurance, with 24 percent spending between 1 and 2 percent of their incomes, and 7 percent 

spending more than 5 percent of their incomes. Because household income tends to be higher 

and flood insurance premiums tend to be lower outside the SFHA, homeowners outside the 

SFHA tend to spend a lower proportion of their income on flood insurance. As such, around 80 

percent of policyholders outside the SFHA spend less than 1 percent of income on flood 

insurance. 

Table 2.8. Flood Insurance Costs as Percentage of Weighted Household Income 

for Residential Policyholders 

In SFHA Outside SFHA Total Flood Insurance 

Cost as Percentage Number Percent of Number Percent Number Percent of 

of Income (in 000s) Total (in 000s) of Total (in 000s) Total 

Policyholders Who Own Their Residence 

<= 1% 741 49% 1,322 80% 2,063 65% 

>1% and <=2% 366 24% 222 13% 588 19% 

>2% and <=3% 163 11% 56 3% 219 7% 

>3% and <=4% 76 5% 22 1% 98 3% 

>4% and <=5% 44 3% 11 1% 55 2% 

>5% 109 7% 28 2% 138 4% 

Total 1,499 100% 1,663 100% 3,162 100% 

Policyholders Who Are Renters 

<= 1% 86 31% 120 57% 206 42% 

>1% and <=2% 69 25% 49 23% 118 24% 

>2% and <=3% 34 12% 18 9% 52 11% 

>3% and <=4% 26 9% 9 4% 35 7% 

>4% and <=5% 14 5% 3 2% 17 3% 

>5% 46 17% 11 5% 58 12% 

Total 275 100% 211 100% 486 100% 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

NOTE: Data weighted using ACS sample weights; policyholder costs includes premium and fees. 

Renters with flood insurance tend to spend a higher percentage of income on flood insurance 

(bottom half of Table 2.8). Inside the SFHA, 31 percent of renters spend less than 1 percent of 

income on flood insurance while 17 percent of renters spend more than 5 percent of their 

incomes on it. Similarly, the percentage of income spent on flood insurance is lower outside of 

the SFHA. Renters typically purchase contents only insurance as they do not own the property in 

which they reside. 

We cannot calculate flood insurance costs as a percentage of income for non-policyholders. 

However, as household income for non-policyholders is lower than for policyholders and if the 

16 
 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

cost of a policy ends up being similar for non-policyholders and policyholders, then premium as 

a percentage of income would be higher for non-policyholders. 

The numbers in Table 2.8 provide information on the burden households’ face when purchasing 

flood insurance under a percentage of income measurement. For comparison, national data from 

the Bureau of Labor Statistics show that, on average, households in owner-occupied housing 

units across the country (the vast majority of which do not purchase flood insurance) spend 1.8 

percent of their income on home insurance, maintenance, repair, and other housing expenses, 

excluding mortgage payment and property taxes.20 While the percentage of household income 

spent on home insurance, maintenance, repair, and other housing expenses, excluding mortgage 

payments and property taxes, provides some point of reference, it is not particularly useful in 

determining when the purchase of flood insurance becomes burdensome. Currently, there is no 

reasonable basis for determining at what point (in terms of the percent of household income) 

flood insurance cost becomes burdensome. 

Table 2.9 provides a measure of affordability based on housing-burden which is an alternative 

affordability measure that accounts for a household’s total housing cost. The top area of the table 

shows the PITI ratio for homeowners with flood insurance. Around 12 percent of homeowners 

have a PITI ratio greater than 0.4—they are considered to be burdened and at a level above 

which few lenders would be willing to make loans to them.

21 These households consider the cost 

of flood insurance burdensome and difficult to afford. Household incomes are higher and flood 

insurance premiums are lower outside the SFHA, and consequently a lower percentage of 

homeowners outside SFHAs have a PITI ratio in excess of 0.4 (7 percent as opposed to 12 

percent). 

20U.S. Bureau of Labor Statistics, “Consumer Expenditures in 2009,” new release, USDL-10-1390, October 2010. 

21“Section F. Borrower Qualifying Ratios (4155.1),” hud.gov website, March 1, 2011b. As of March 20, 2017: 

https://portal.hud.gov/hudportal/documents/huddoc?id=4155-1_4_secF.pdf 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 2.9. Ratio of PITI to Household Income for Residential Policyholders 

In SFHA Outside SFHA Total 

Housing Burden 

(PITI Ratio) Number Percent of Number Percent of Number Percent of 

(000s) Total (000s) Total (000s) Total 

Policyholders Who Own Their Residence 

<= 0.3 1,213 81% 1,461 88% 2,673 85% 

>0.3 and <=0.4 106 7% 77 5% 183 6% 

>0.4 and <=0.7 104 7% 75 4% 179 6% 

>0.7 76 5% 51 3% 127 4% 

Total 1,499 100% 1,663 100% 3,162 100% 

Policyholders Who Are Renters 

<= 0.3 133 53% 112 59% 245 55% 

>0.3 and <=0.4 35 14% 26 14% 61 14% 

>0.4 and <=0.7 52 20% 33 17% 85 19% 

>0.7 33 13% 20 10% 53 12% 

Total 253 100% 191 100% 444 100% 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

NOTE: Data weighted using ACS sample weights; table excludes ACS respondents who occupy a rental property
 

without payment of rent.
 

PITI ratios for renters (defined as gross rent over income) are higher than those for homeowners 

with 33 percent of renters inside SFHAs and 27 percent of renters outside SFHAs maintaining a 

PITI ratio over 0.4. By this definition, flood insurance is unaffordable for a substantial 

percentage of renters. 

Table 2.10 repeats the analysis for non-policyholders. As reported above, non-policyholders tend 

to have lower incomes than policyholders, but they presumably also tend to have lower PITI 

costs because they do not purchase flood insurance. Thus, it is not obvious how the PITI ratios 

for non-policyholders will compare to those of policyholders. Comparing Tables 2.9 and 2.10 

reveals that no consistent relationship exists between the PITI ratios of the two groups. For 

example, 7 percent of homeowners in SFHAs without flood insurance have a PITI ratio over 0.4 

compared to 12 percent of policyholders. In contrast, 34 percent of renters outside SFHAs 

without flood insurance have a PITI ratio over 0.4 compared to 27 percent of policyholders. 

Overall, there is no strong relationship between the PITI ratios of policyholders and nonpolicyholders. 

18 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 2.10. Ratio of PITI to Household Income for Residential Non-policyholders 

In SFHA Outside SFHA Total 

Housing Burden 

(PITI Ratio) Number Percent of Number Percent of Number Percent of 

(000s) Total (000s) Total (000s) Total 

Non-policyholders Who Own Their Residence 

<= 0.3 1,498 88% 57,012 87% 58,511 87% 

>0.3 and <=0.4 70 4% 3,384 5% 3,454 5% 

>0.4 and <=0.7 69 4% 2,982 5% 3,051 5% 

>0.7 59 3% 1,996 3% 2,055 3% 

Total 1,696 100% 65,374 100% 67,071 100% 

Non-policyholders Who Are Renters 

<= 0.3 719 47% 17,118 51% 17,118 51% 

>0.3 and <=0.4 244 16% 5,197 15% 5,197 15% 

>0.4 and <=0.7 308 20% 6,390 19% 6,390 19% 

>0.7 254 17% 5,140 15% 5,140 15% 

Total 1,524 100% 33,845 100% 33,845 100% 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

NOTE: Data weighted using ACS sample weights; table excludes ACS respondents who occupy a rental property
 

without payment of rent.
 

While the PITI-based measure of affordability takes a more holistic view of household finances 

than the ratio of the premium to income, it has its own drawbacks. We detail those drawbacks in 

Chapter 3 when we discuss the advantages and disadvantages of a flood insurance affordability 

program based on the PITI-based measure of affordability. 

19 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

III. Affordability Framework: Developing a Feasible Set 

of Flood Insurance Affordability Program Design 

Options 

In order to develop a set of flood insurance affordability program design options, we conducted 

background research. As part of that research, FEMA obtained the assistance of the National 

Academies of Science, Engineering, and Medicine (NAS) for two workshops. The workshops 

convened by NAS included attendees from other federal agencies that administer assistance 

programs, academics who have studied flood insurance affordability, and other professionals 

with relevant expertise related to insurance. FEMA’s goals for the workshops were to learn more 

about these other assistance programs and to obtain information to enhance FEMA’s ability to 

develop a set of potential flood insurance affordability options. We discuss the flood insurance 

affordability design options that emerged from this effort and qualitatively assess them based on 

our own expertise and in light of expertise of the workshop attendees. The workshops also 

generated some ideas for administrative and funding options, which we discuss in Chapter 5. 

Based on the background research and workshops, we identify four program design options: 

1.	 Income-based premium sharing: Lower-income households would be responsible for 

paying for a portion of the premium amount and FEMA covers the remainder of the 

premium amount. In this option, as household income levels rise, the portion of the 

premium that would be covered by FEMA decreases. 

2.	 The premium burden-based benefit: Lower-income households would be responsible 

for paying for a portion of their income for flood insurance. If the required proportion of 

income is not sufficient to cover the insurance premiums, FEMA would cover the 

remainder of the premium amount. 

3.	 The housing burden-based benefit: Lower-income households that spend more than a 

specified amount of their income on housing-related expenses, such as mortgage amount, 

taxes and insurance would receive assistance. 

4.	 Mitigation grants or loans: This approach would complement the other program 

designs. Under this design option, the government would provide financial assistance to 

fund structure-specific mitigation activities that lead to reduced risk. The assistance 

would be a grant for lower-income households and a loan for more moderate-income 

households. 

The four design options vary in terms of their design characteristics, advantages and 

disadvantages, and risk communication implications, which are described below. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

What We Did 

Background Research on Developing Flood Insurance Affordability Design 

Options 

FEMA began developing the program options proposed in this document by reviewing two 

congressionally mandated NAS reports—Affordability of National Flood Insurance Program 

Premiums, Reports 1 and 2.

22 The first report documented the history of the NFIP pricing 

practices, reviewed the literature on the demand for flood insurance, and identified questions for 

consideration when designing an assistance program. The second report identified criteria for 

evaluating potential affordability policy options and highlighted the absence of data necessary to 

determine what would be affordable for NFIP policyholders. 

To further our understanding of the challenges associated with developing an affordability 

program, we reviewed an overview by the U.S. Government Accountability Office (GAO) of 80 

public assistance programs released in 2015. Based on that report, we developed a spreadsheet to 

track characteristics across programs, such as the program goal, the eligibility criteria, the 

assistance provided, and the costs.23 Based on that information, we classified the programs into 

different categories of assistance programs and then selected representative programs within 

those categories that were most applicable to a potential flood insurance affordability program. 

We focused on three characteristics of those programs: type of assistance provided, how it is 

provided, and who receives assistance. In addition, we asked NAS to convene two workshops for 

this study, with the goals of learning more about these assistance programs and soliciting 

individual perspectives useful for developing a set of potential flood insurance affordability 

options. 

These workshops focused on the following questions: 

1. Who will receive a benefit? 

2. What is the level of benefit for different household types? 

3. By who and how will the program be administered? 

4. How will the program be funded? 

First Workshop 

We identified six federal agencies that implemented ten different benefit assistance programs and 

invited them to a workshop to discuss how those programs operated. The federal agencies that 

attended the workshop included the Department of Energy (DOE), Department Health and 

Human Services (HHS), Department of Agriculture (USDA), Department of Housing and Urban 

22Affordability of National Flood Insurance Program Premiums – Report 1, 2015. Committee on the Affordability 

of National Flood Insurance Premiums, Water Science and Technology Board, the National Research Council of the 

National Academies, Washington D.C. Affordability of National Flood Insurance Program Premiums – Report 2, 

2016. Committee on the Affordability of National Flood Insurance Premiums, Water Science and Technology 

Board, the National Research Council of the National Academies, Washington D.C. 

23Federal Low-Income Programs: Multiple Programs Target Diverse Populations and Needs. July 2015. U.S. 

Government Accountability Office, GAO-15-516. 

21 
 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Development (HUD), the Federal Housing Finance Agency (FHFA), and the Small Business 

Administration (SBA). Representatives from the Office of Management and Budget (OMB) and 

the GAO also attended. In addition, several academics who study the issues of flood insurance 

affordability participated. 

The programs discussed in the first workshop (along with their relevant agencies) were as 

follows: 

1. Home Weatherization (DOE); 

2. Disaster Supplemental Nutrition Assistance Program (USDA); 

3. Supplemental Nutrition Assistance Program (USDA); 

4. Small Business Disaster Loan Program (SBA); 

5. Head Start (HHS); 

6. Health Insurance Exchange (HHS); 

7. Medicare Nursing Home Program (HHS); 

8. Housing Choice Vouchers (HUD); 

9. Public Housing Program (HUD); and 

10. Low Income Home Energy Assistance Program (HHS). 

The workshop provided insight into a wide variety of assistance programs within the Federal 

Government, and into how each defines affordability and how the responsible agency 

administers its program. We learned from the first workshop that most of the program 

characteristics, such as the definition of affordability and how the program is administered, arose 

from the program’s initiating legislation. As a result, agency views on the concept of 

affordability differ based on whether their programs grew out of a congressional mandate or 

through interpreting rules that govern these programs. 

For many programs, there are specific proportions of income that individuals have to contribute 

for the good or service being provided before receiving the benefit. For example, HUD’s Public 

Housing Program is based on a formula that requires that the household to spend a certain 

percentage of its income on housing with the Federal Government subsidizing the remainder of 

the payment.24 This method defines affordability through an acceptable level of cost burden 

placed on a household. By contrast, other programs define affordability through income levels. 

For example, the Supplemental Nutrition Assistance Program (SNAP) program states that given 

an income level, a specific benefit is defined for the household that may only be expended on 

food. We believe this concept is similar to the idea of cost burden, because policymakers believe 

there is a specific amount of money that is reasonable for a household to spend on certain basic 

living expenses. 

The information we learned from this initial workshop helped us to frame our options for an 

affordability framework that is grounded in structure and experience of existing federal 

24The formula used to determine rent for a public housing resident is the highest of the following, rounded to the 

nearest dollar: (1) 30 percent of the monthly adjusted income. (Monthly Adjusted Income is annual income less 

deductions allowed by the regulations); (2) 10 percent of monthly income; (3) welfare rent, if applicable; or (4) a 

$25 minimum rent or higher amount (up to $50) set by a Housing Authority. 

22 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

programs. While those programs are generally aimed at providing affordable goods or services, 

which is inherently different to flood insurance, the catalog of different programs and critical 

program information from the agencies administering them provided us with insights and 

analysis to develop alternative program designs for (1) who would be eligible, (2) how benefits 

could be calculated, and (3) how the program could be administered. 

Second Workshop 

Based on a review of existing assistance programs and the input received at the first workshop, 

FEMA developed a set of six potential program design options, as well as four potential methods 

of administering a flood insurance affordability program. For the second workshop, the NAS 

reconvened most of the federal agencies that attended the first workshop, several academics, and 

two loaned executives from insurers that participate in the Write Your Own (WYO) program to 

participate in a second workshop. The federal agencies in attendance included the DOE, HHS, 

USDA, HUD, FHFA, and SBA. Additionally, an individual associated with the District of 

Columbia’s Health Insurance Exchange (DC Health Link) participated. Representatives from 

OMB and the GAO also attended the workshop. 

FEMA presented a set of potential design and administration options to the full group at the 

second workshop. We divided the attendees into three groups to examine, discuss, and provide 

concrete feedback on both the design and administration options for a potential affordability 

program. FEMA’s goal was to obtain opinions on specific program design and administration 

options, including a discussion of the pros and cons of each option, from knowledgeable parties 

having experience designing or administering social assistance programs or those familiar with 

NFIP’s mechanics. For these meetings, participants were asked not to consider any issues related 

to the cost of the program. 

Feedback from the second workshop was valuable, and, allowed FEMA to narrow the set of 

options to those that address the issue of affordability and that we could implement most 

efficiently and with the least amount of complexity. (See Chapter 5 for discussion of the 

administration options.) 

Design Options for a Flood Insurance Affordability Program 

Based on the second affordability workshop, FEMA developed a set of design options for an 

affordability program: 

1. Income-based premium sharing 

2. Premium burden-based benefit 

3. Housing burden-based benefit 

4. Mitigation grants and loans 

Program Design 1: Income-Based Premium Sharing 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

The income-based premium sharing design is based on cost sharing between lower-income 

households and the Federal Government to reduce a household’s policy cost.25 The Federal 

Government pays a part of the policy cost that represents the benefit, and the household pays a 

portion, depending on its income. To prevent marked changes in benefits at certain income 

thresholds, we assume that the benefit will decrease gradually as income increases. 

Design Characteristics 

Under the income-based premium option, benefits to households decrease as household income 

rises. This approach requires establishing the relationship between income and benefits. As 

previously discussed, two common income thresholds are used to determine eligibility for 

program benefits: (1) FPL, and (2) AMI. While the FPL is constant across the entire country, the 

AMI is specific to a location—most commonly at the county, municipality, or metropolitan area 

level—because it incorporates the cost of living in that location. Because FEMA is developing a 

nationwide framework and incomes and cost of living vary by states and regions, we concluded 

that AMI is the most appropriate measure for our purposes. We used the income categories listed 

in Table 2.4 of Chapter 2. 

This design option has three main parameters: 

1.	 What level of benefit is provided to the lowest-income households? 

2.	 What is the income cutoff, measured with respect to AMI, for households receiving that 

level of benefit? 

3.	 What is the income cutoff for receiving any benefit from the Federal Government? 

Figure 3.1 provides an illustrative example of how the program could operate. In this example, 

the benefit for the lowest income household is 80 percent of the premium, meaning even the 

lowest-income households would still be responsible for paying at least 20 percent of their policy 

cost. Households earning less than 50 percent of AMI would receive 80 percent of the premium 

and the portion of the premium covered would gradually fall to zero as income approaches 120 

percent of AMI. 

Assuming a premium of $3,000, Figure 3.1 shows what the benefit would be for each income 

level. The blue bars show the amounts paid by two different households, and the red bars show 

what the benefits would be for the same two different households. Household 1 has an income 

less than 50 percent of AMI; thus, FEMA covers 80 percent of its premium. It would thus pay 

$600 of the $3,000 premium, with the program picking up the rest ($2,400). Household 2 has 

income between 50 percent and 120 percent of AMI and receives a benefit, but the benefit would 

be less than 80 percent of the premium. 

25This option is motivated by HHS’s Low Income Home Energy Assistance Program (LIHEAP). As administered by 

some states, the program provides beneficiaries with payments that partially offset their home energy costs; the 

amount received varies by the household’s income category. 

24 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure 3.1. Illustrative Example of Income-Based Premium Sharing 

Source: Adapted from Dixon, Clancy, Miller, et al., The Cost and Affordability of Flood Insurance: Economic Impacts 

of Rising Premiums and Policy Options for One- to Four-Family Homes, RAND, RR-1776, 2017, p. 91. 

As with the other options described below, the number of households eligible and the overall 

cost of the program will depend on the design parameters. This approach could offer benefits to 

moderate-income households (those with incomes between 80 and 120 percent of AMI); 

although benefits decline as incomes rise. Reducing the income cutoff for receiving any 

government assistance (120 percent of AMI, in this case) will reduce the number of households 

eligible for the program. Reducing the maximum percent of the flood insurance premium 

covered (80 percent of the premium, in this case) or the income cutoff for receiving the 

maximum benefit (50 percent of AMI, in this case) will reduce the cost of the program given the 

number of households eligible. 

The program cost will also depend on a number of program features, specifically on whether: 

 Only the current owner of the home is eligible or whether future buyers of the property 

are also eligible to receive the benefit; 

 The program should sunset after a certain number of years; 

 Only homes in high-risk flood areas (where flood insurance is mandatory for 

homeowners with federally regulated mortgages) are eligible, or whether all homes in the 

United States are eligible; and 

 The program is for primary homeowners or also for renters, those with second homes, 

and businesses. 

These decisions will have important impacts on the number of households assisted, the extent of 

the assistance provided, and the overall cost of the program. Ultimately, policymakers will make 

the tradeoff decisions between program cost and the impact of the program on flood insurance 

affordability. 

25 
 

 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Advantages and Disadvantages 

In the second NAS workshop, participants noted that one of the primary advantages of the 

income-based premium sharing approach is that it would be relatively straightforward to 

implement. The information that FEMA would collect from the household and use (income level 

and flood insurance premium) is obtainable and relatively straightforward to use. Additionally, 

because benefits vary continuously across incomes, households do not risk experiencing a 

situation where earning an additional dollar results in them receiving drastically fewer, or no 

benefits. By using AMI, the amount of benefits received adjusts to local costs of living. The FPL 

does not adjust to the local cost of living. 

The primary disadvantages to this approach are that there is no existing legislative guidance or 

precedent for how to select the parameters of the benefit structure. Second, while this option 

targets households with low to moderate levels of income, some households for whom flood 

insurance is not difficult to afford may receive benefits. For example, a low-income household 

that spends only a very small proportion of its income on flood insurance would still receive 

benefits in this program design. Another disadvantage of basing eligibility on income alone is 

that households with low income but high net worth could receive assistance. FEMA could 

administer an asset test to prevent such an occurrence, but the administrative burden of 

conducting such a test on every household applying for assistance could be high. Previous work 

suggests that the percent of households with low incomes and high net worth is low, so a simpler 

solution is to require that households that receive the benefit certify that their net worth is not 

above a specified threshold, informing applicants that forms are subject to audit.26 The program 

could then audit a small number of the eligibility applications each year to deter false statements. 

Risk Communication 

FEMA would notify NFIP participants of their full-risk rate before providing the program benefit 

to signal their risk is greater than their premium price reflects. Even though households pay a 

part of their premium if they receive a benefit, they do not pay for the full risk of living in a 

flood-prone area and may not expend resources to avoid or mitigate risk in high-risk areas. 

However, when households receive benefits as a percentage of the premium and premiums rise 

with risk, they would have some incentives to avoid riskier or costlier areas. 

Program Design 2: Premium Burden-Based Benefit 

Requiring households to pay a certain percentage of their incomes toward flood insurance is a 

second approach to developing an income-based option. If the required proportion of income is 

not sufficient to cover flood insurance premiums, the Federal Government would pay for the 

remainder of the cost. 

26For example, previous work has shown that 4.2 percent of households with incomes less than $24,000 have net 

worth (including the equity in their home) of $500,000 or more (Dixon, Clancy, Miller et al., The Cost and 

Affordability of Flood Insurance: Economic Impacts of Rising Premiums and Policy Options for One- to FourFamily Homes, RAND, RR-1776, 2017, p. 149). 

26 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Design Characteristics 

In this design option, households would be required to spend a proportion of their income on 

flood insurance before collecting any benefit. As in Design 1, percentages of AMI are cutoff 

points for the portion of income households are expected to spend on flood insurance. For 

example, a household with income less than 50 percent of AMI might be required to spend up to 

0.5 percent of their income on its flood insurance premiums (excluding fees), while a household 

with income between 50 and 80 percent of AMI might be required to spend 1.5 percent of their 

income. The Federal Government would pay the remainder of the premium cost. 

Figure 3.2 provides a visualization of the potential design option. The blue lines show the 

amount that two hypothetical households would be required to pay toward the flood insurance 

premium, while the red lines show the program benefit received. Household 1 receives a larger 

benefit than Household 2, because Household 1 has a lower income. 

Figure 3.2. Illustrative Example of Premium Burden-Based Benefit 

Source: FEMA Analysis 

Advantages and Disadvantages 

As with Design 1, there are several advantages to consider. First, the information to be collected 

from the household and used by program administrators is relatively straightforward to obtain. 

Second, from the policyholder perspective, there is a cap on the maximum amount a household 

must pay on flood insurance, meaning premium increases do not create new affordability 

27 
 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

concerns for the beneficiaries.

27 Third, the government can base required household contribution 

on a reasonable expectation of how much a household should pay toward flood insurance. 

One of the disadvantages of this approach is that households no longer share in any potential 

premium increases because of increased flood risk at the property; as such, they do not have an 

incentive to avoid additional flood risk. Second, there are few precedents for policymakers to 

follow in setting a reasonable percentage of income that policyholders should spend on flood 

insurance, and third, potentially, households with low income but high net worth could receive 

assistance because income, and not household wealth is considered. The same solution to this 

drawback could apply here, which is to have households that receive the benefit certify their net 

worth is not above a specified threshold, informing applicants their forms are subject to audit. 

A final disadvantage of this approach is that it uses an affordability metric that is based on just 

one component of overall housing cost; thus, this option could result in providing a benefit to a 

household with high flood insurance cost but a low mortgage payment (and who thus could 

afford flood insurance according to a PITI-based measure of affordability). For example, a lowincome household may be able to afford a property with a very high flood insurance premium 

and an associated low property value. A low-income household may be able to afford the 

property if the Federal Government was largely subsidizing the premium. In that instance, the 

Federal Government would be facilitating the purchase of high-risk properties by low-income 

households.28 

Risk Communication 

FEMA would notify program participants of their full-risk rate before providing the program 

benefit to signal that their risk is greater than their premium price reflects. However, the pricing 

for this option does not communicate risks to the household, because all households with a given 

income will pay the same, regardless of the risk they face and regardless of whether their risk 

increases. Thus, this provides no incentive for the household to avoid or mitigate flood risk in 

high-risk areas. 

Designs 1 and 2 with Income Bins Rather Than Continuous Subsidy 

For certain income ranges in both Designs 1 and 2, the subsidy declines gradually as income 

increases, but it is possible to recast the subsidy in terms of income “bins” for both options. That 

is, all households within certain AMI categories would receive the same benefit. For example, 

with Option 1, the program could be designed such that for an AMI less than 50 percent, 

households would receive 80 percent of the premium as a benefit. Between 50 percent and 100 

percent of AMI, they would receive 60 percent of the premium. Finally, between 100 percent and 

120 percent, they would receive 40 percent of the premium. Several federal workshop 

participants stated that this binned approach may be more streamlined from an administrative 

27A higher flood insurance premium shifts up the horizontal flood insurance premium line above $3000 in Figure 

3.2, but the curve indicating the required amount of household contribution does not change. 

28See Dixon, Clancy, Miller, et al., RAND, RR-1776, 2017, p. 78-82 for a discussion of the relationship between 

flood insurance cost and property value. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

perspective, but it comes at a potential cost. Strict cutoff points penalize households that are just 

above the cutoff points—in particular, households might see a considerable drop in benefits if 

the household slightly increases its income.

29 This cut off could potentially discourage lowincome households from seeking additional income. 

Program Design 3: Housing Burden-Based Benefit 

In this design option, benefits are targeted at households that are both income and housingburdened—that is, the percent of income spent on homeownership exceeds a specified 

threshold.30 As in previous options, benefits are limited to households with incomes below a 

fixed AMI threshold, but only available to households that are spending more than a fixed 

percentage of their income on housing. Benefits are no larger than the household’s flood 

insurance premium. This design benefits households that spend a larger portion of their income 

on housing; referred to as PITI (principal, interest, taxes, and insurance) and is a standard lending 

industry metric. 

Design Characteristics 

The benefit would cover that part of the flood insurance premium that, when added to PITI, 

would cause the percentage of income spent on housing to rise further above the specified 

threshold. Two main parameters determine eligibility in this design: first, the benefit is only 

available for households below a fixed AMI threshold. Figure 3.3 sets the income eligibility 

threshold at 120 percent of AMI, as in the previous examples. Second, the benefit is only 

available to households that spend more than a fixed percentage of their income on housing. 

Based on practices in the lending industry, our example in Figure 3.3 assists households with 

housing burden above 40 percent of their income—these households are housing-burdened and, 

would likely have difficulty affording flood insurance. 

29Saez, E. (2010). Do taxpayers bunch at kink points? American Economic Journal: Economic Policy, 2(3), 180-

212. 

30This is a similar model to HUD’s Section 8 rental housing assistance program, where participants are expected to 

pay 30 percent of their monthly income toward their housing costs. The HUD subsidy covers the remaining amount 

up to a capped market rental amount. 

29 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure 3.3. Illustrative Example of Housing Burden-Based Premium Benefit 

Source: Adapted from Dixon, Clancy, Miller, et al., The Cost and Affordability of Flood Insurance: 

Economic Impacts of Rising Premiums and Policy Options for One- to Four-Family Homes, 

RAND, RR-1776, 2017, p. 98. 

In Figure 3.3 above, Household 1 spends more than 40 percent of its income on housing costs, 

with or without flood insurance costs and therefore would receive a benefit for its entire flood 

insurance premium. In contrast, Household 3’s PITI-to-income ratio is less than 40 percent, with 

or without flood insurance, and as such, it would receive no benefit. Household 2, spends more 

than 40 percent of its income on housing when flood insurance is included, and therefore would 

receive a benefit for that portion of the flood insurance premium that causes its housing burden 

to increase above 40 percent of income—which is the difference between the PITI with flood 

insurance and 40 percent of income. For example, suppose that Household 2 has an income of 

$62,000 and currently spends $23,500 on PITI excluding flood insurance (38 percent of income). 

The household faces a flood insurance premium of $3,000, moving its housing costs to $26,500 

and its PITI ratio to about 43 percent of income. A 40 percent PITI-to-income ratio would be 

$24,800; consequently, Household 2 would be responsible for $1,300 of its flood insurance 

premium ($24,800–$23,500) and would receive a benefit of $1,700. 

Advantages and Disadvantages 

A principal advantage of this approach is that it bases program parameters (particularly the PITI 

ratio cutoff) on best practices in the lending industry. Lenders typically will not make loans that 

cause housing burden to exceed 30 to 40 percent, and this cutoff can be used as the definition of 

affordability underlying the program. Previous work has shown the PITI ratio is highly 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

correlated with household income, so a program basing eligibility on the PITI ratio will target 

lower-income households.31 

Despite these advantages, the PITI approach also has several disadvantages. First, because this is 

a more complex design, FEMA would have to gather more information about the recipient to 

implement this option. In addition to the household’s income, this design requires FEMA to 

gather information on household’s mortgage payments, property taxes, and insurance payments. 

Although this approach would require FEMA to obtain additional information, the components 

that make up PITI can be mostly or entirely observed using mortgage data and administrative 

data.32 Second, the approach also creates some potentially perverse incentives by providing 

larger benefits for households potentially overextended on housing costs and smaller benefits for 

households who were more frugal in making their choices. As a consequence, this approach 

could encourage low-income households to spend a larger portion of their income on housing 

than those households would have spent without the benefit. 

Third, households that are already receiving benefits do not share in any policy cost increases— 

all premium increases for such households are picked up by the program. This concern could be 

mitigated by modifying the design to only compensate a maximum percentage of insurance 

costs, similar to the 80 percent maximum benefit in Design 1. Fourth, this design option may 

also steer benefits away from low-income policyholders, even though some of these households 

may able to afford flood insurance using housing burden-based measure of affordability. For 

example, a family who lives in an inherited home may have low income but also a low PITI ratio 

and thus would be ineligible for assistance under this program. Conversely, a higher-income 

household might have a large mortgage and high PITI ratio and thus be eligible for assistance.33 

Using an asset test and the income eligibility cutoff in addition to the PITI ratio could eliminate 

benefits to more affluent households; however, low-income households without mortgages 

would still be less likely to qualify for assistance than households with access to credit. 

A final potential concern with a PITI-based approach is that households in regions with high 

costs of living (and mortgage payments) might be more likely to benefit from the program than 

households in regions with lower costs of living.34 

Risk Communication 

FEMA would notify program participants of their full-risk rate before providing the program 

benefit to signal that their risk is greater than their premium price reflects. However, price is one 

of the best signals of risk there is, and households that are above the housing burden eligibility 

requirement prior to considering flood insurance will not pay anything toward their premiums. 

Additionally, those households that are just over the housing burden threshold because of higher 

flood insurance premiums would pay part of their premiums but would not pay their full risk 

31See Dixon, Clancy, Miller, et al., The Cost and Affordability of Flood Insurance: Economic Impacts of Rising 

Premiums and Policy Options for One- to Four-Family Homes, RAND, RR-1776, 2017, p. 97.
 

32Other measures include debt-to-income ratios, which often include other loans, such as auto loans, and revolving
 

debt such as credit card debt.
 

33Note, however, that the income cutoff for program eligibility will prevent benefits to households over the income 

cutoff.
 

34Lenders will presumably not make loans even in the high-cost areas that cause PITI to rise beyond 40 percent of
 

income, which should limit the variation in PITI by geographic region.
 

31 
 

 

 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

premium. These households would have limited incentives to reduce or mitigate their risks, 

because they do not pay full risk rates. 

Program Design 4: Mitigation Grants and Loans 

Design Options 1, 2, and 3 subsidize policyholders’ premiums by providing financial assistance 

to an individual unable to pay for insurance. While those design options will reduce the burden 

of flood insurance premiums for policyholders, they will not change the physical flood risk borne 

by individual policyholders or the nation as a whole. 

Reducing flood risk is an important policy goal for the NFIP, and FEMA offers premium 

discounts to policyholders and communities where policyholders live if they undertake certain 

mitigation activities. While structure-specific mitigation activities lead to reduced risk, the 

resulting premium discounts are often insufficient to cover the cost of mitigation activities. In 

addition, the premium reduction that policyholders could realize after mitigating their properties 

depends on their prior flood risk and the type of mitigation effort they undertook. Even with the 

potential benefits of reduced future losses and decreased current premiums, households are often 

required to make large upfront costs to achieve the risk reduction that comes from mitigation 

activities. As households must pay upfront for this stream of benefits, and low-to moderateincome households may be unable to afford those costs. 

Design 4 focuses on providing mitigation grants or loans to cover these large upfront costs to 

achieve cost-effective flood mitigation. In addition to benefiting the policyholder, mitigation can 

also benefit the Federal Government by reducing the cost of an affordability program and by 

reducing disaster relief costs.35 Mitigation grants or loans could be a stand-alone program, or 

they could be added to any one of the previously discussed designs. Because mitigation measures 

may not be feasible or cost effective for many homes, mitigation grants and loans alone would 

not be an adequate affordability program. Therefore, we recommend that mitigation grants and 

loans could be an add-on to Designs 1, 2, and 3 instead of being the primary delivery mechanism 

for an affordability program. 

Design Characteristics 

Low-income households (for example, those with less than 80 percent of AMI) would receive 

funding for mitigation activities through a grant as these households will likely not qualify for a 

loan and would have difficulty repaying one. In contrast, moderate-income households (for 

example, those with 80 to 120 percent of AMI) would receive low-interest loans. Site and 

structure-specific mitigation measures that currently result in reduced flood insurance premiums 

include elevating the structure, filling in the basement, elevating utilities so they are less likely to 

be damaged in a flood, and installing flood vents. To be a feasible option, chosen mitigation 

measures would need to pass a cost-benefit analysis. Specifically, the reductions in the 

35By reducing the flood insurance premium, mitigation can reduce the need for assistance and thus the cost of an 

affordability program. For illustrations of how mitigation can reduce program costs, see Kousky and Kunreuther, 

Addressing Affordability in the National Flood Insurance Program, Resources for the Future and the Wharton 

School of Business, Issue Brief, 13-02, August 2013; and Dixon, Clancy, Miller, et al., The Cost and Affordability of 

Flood Insurance: Economic Impacts of Rising Premiums and Policy Options for One- to Four-Family Homes, 

RAND, RR-1776, 2017, pp. 113–114. 

32 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

discounted present value of flood insurance premiums over time would need to be greater than 

the cost of the mitigation activity. Community-level mitigation measures, such as green 

infrastructure and acquisition of NFIP insured structures with the requirement to keep the 

property as open-space in perpetuity, could also be a viable option to reduce flood risk and 

premiums. Incorporating such measures into an affordability program is outside the scope of our 

analysis. 

We considered requiring households receiving benefits through Designs 1, 2, or 3 to take costeffective mitigation measures, however, some mitigation measures may not be feasible or 

desirable to policyholders that need premium discounts. For example, households may 

experience considerable inconvenience (such as moving out of the house) while the structure is 

being modified. Therefore, we recommend that households be encouraged but not be required to 

take cost-effective mitigation measures if they received benefits through an affordability 

program. 

Advantages and Disadvantages 

A mitigation activity provides advantages if the effort reduces flood risk to the home and thereby 

reduces the discounted present value of flood insurance premiums by more than the cost of the 

mitigation measure. That is, the funds spent on the mitigation measures are less than the amount 

the policyholder receives in premium discounts over the life of the policy. In this case, a 

mitigation measure would have a clear benefit to the policyholder and the Federal Government. 

Given that mitigation measures may not be feasible or pass a cost-benefit test, such a program 

may apply to very few policyholders, and provide limited affordability assistance to households 

relative to the cost of administering the program. Participants in the affordability workshops also 

noted that mitigation on a property-by-property basis may or may not be to be as cost effective as 

community-wide mitigation activities in reducing overall risk to flooding. 

Mitigation grants and loans have several current and potential challenges associated with them. 

First, for mitigation grants, structural mitigation may reduce the value of the structure being 

mitigated and the timeline for implementing grant programs can be lengthy. For example, a 

filled-in basement could lead to a loss of rental income or make the property less desirable or 

marketable because of a reduction in usable space. Finally, implementing a loan program would 

also be complex and would rely on other agencies to conduct cost–benefit analyses on mitigation 

activities and to administer a loan program. 

Risk Communication 

In this option, there is full risk communication to the household because mitigation measures that 

directly reduce individual flood risk also reduce flood insurance premiums. In addition, a 

household would only receive the grant or loan if it lowered its risk by enough so the premium 

reductions were greater than the cost of the investment. 

Comparison of Program Design Options 

33 
Table 3.1 summarizes the key advantages and disadvantages of the designs considered. It also 

provides a short description of what is required to participate in the program from the 

policyholder’s perspective. 

Table 3.1. Comparison of Flood Insurance Affordability Program Design Options 

1. Income-Based 

Premium Sharing 

2. Premium BurdenBased Benefit 3. Housing-Burden 

Based Benefit 

4. Mitigation Grant 

and Loan Add-On 

Overview Household pays a 

percentage of flood 

insurance premium, 

with percentage rising 

as income rises 

Only households below 

a specified income 

cutoff are eligible 

Household pays up to 

a specified percentage 

of income on flood 

insurance premium, 

and program pays the 

rest of the premium 

Only households below 

a specified income 

cutoff are eligible 

Benefits provided to 

low- and moderateincome households with 

high housing costs 

relative to income 

Only households below 

a specified income 

cutoff are eligible 

Grants and low 

interest loans for 

structure-specific 

mitigation 

Mitigation must pass 

a cost–benefit test 

Program is a 

voluntary add-on to 

Designs 1, 2, and 3 

Advantages	 Simple eligibility criteria 

Household shares cost 

of increasing premiums 

Simple eligibility 

criteria 

Required household 

contribution can be 

based on expectations 

for how much 

household should pay 

toward flood insurance 

Household responsible 

for spending a certain 

percentage on 

homeownership before 

receiving benefits 

Definition of housing 

burden can be based on 

lending industry 

practices 

Enables mitigation 

that makes sense 

from a cost-benefit 

basis 

Reduces need for 

premium subsidies 

Disadvantages	 May provide benefits to 

households for which 

flood insurance is not 

unaffordable based on a 

premium burden or 

housing burden test 

No obvious basis for 

setting program 

parameters 

May provide benefits to 

those who have low 

income but substantial 

assets 

May provide benefits to 

households who can 

afford flood insurance 

based on a housing 

burden test 

Benefits based on only 

one component of an 

interrelated basket of 

housing costs 

Household does not 

share cost of 

increasing premiums 

May provide benefits to 

those who have low 

income but substantial 

assets 

Need to collect more 

detailed household 

financial information 

Rewards households 

that have taken on too 

much debt relative to 

income 

Can limit benefits 

delivered to low-income 

households that own 

homes outright 

Mitigation measures 

may not be feasible 

or pass a cost-benefit 

test for many 

structures 

May be little interest 

in the program 

Administratively 

complex 

Customer 

Experience 

Household must provide 

income documentation 

Household must 

provide income 

documentation 

Household must provide 

information on income, 

mortgage, property 

taxes, and insurance 

Structure must be 

evaluated; household 

may have to move 

out of structure 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

34 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 3.1. Comparison of Flood Insurance Affordability Program Design Options 

1. Income-Based 2. Premium Burden- 3. Housing-Burden 4. Mitigation Grant 

Premium Sharing Based Benefit Based Benefit and Loan Add-On 

payments during mitigation 

process 

35 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

IV. How Policymakers Can Assess the Design Options 

In this chapter, we estimate the number of beneficiaries, annual benefit cost, and program impact 

for various versions of each design using the matched ACS/NFIP data. The analysis in this 

chapter does not provide the cost for or recommend a particular affordability program, rather it 

uses the simulation models we built to illustrate the magnitude of costs that might be involved 

and the tradeoffs among different designs. This framework is intended to inform affordability 

proposals that the Administration and Congress may consider advancing. To that end, we 

simulate a number of different scenarios for each design, with the scenarios reflecting a wide 

range of eligibility cutoffs and benefit levels. These cutoffs and benefit levels are not realistic 

examples of how to implement a particular design but rather illustrate a range of possibilities. 

Based on our modeling and analysis using the simulation model we built, we found the 

following: 

 The number of enrollees and costs of each program design largely depend on the program 

eligibility cutoffs and benefit levels chosen; 

 Program Design 1, Income-Based Premium Sharing, provides benefits to all households 

with income below the specified income cutoffs; 

 Program Design 2, Premium Burden-Based Premium Sharing, focuses benefits on 

households who spend a high percentage of income on flood insurance; 

	 Program Design 3, Housing Burden-Based Benefit, focuses benefits on households with 

high PITI ratios. These households also spend a considerable proportion of household 

income on flood insurance, but not as much as in Design 2. Although this design 

effectively targets households for whom flood insurance is unaffordable based on a 

lending industry definition of affordability, it misses certain households where 

policyholders believe they need assistance to purchase flood insurance. For example, 

retirees with low incomes who have paid off their mortgages, or households with low 

incomes and inherited homes may not receive assistance; 

	 The design options can substantially reduce the proportion of household income spent on 

flood insurance (addressing one affordability metric), but they usually have limited 

impact on the PITI ratio because flood insurance is typically not a large part of PITI; and 

	 Further work is needed to understand the extent to which an affordability program would 

induce some non-policyholders to purchase coverage, thus increasing the number of 

households insured against flood losses but also potentially increasing the costs of the 

affordability program. 

Underlying Assumptions for Interpreting Example Findings 

In interpreting the findings, we note that the reader should keep in mind the following 

assumptions and limitations: 

1.	 The estimates capture annual, as opposed to one-time, cost. 

2.	 The estimates are for the benefits provided to program participants and do not include the 

program’s set up or administrative costs. 

36 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

3.	 The modeled program options deliver benefits only to current NFIP policyholders. 

FEMA chose to model only current policyholders because we have policy cost for these 

households. 

4.	 Policymakers must decide whether the benefit should accrue to only current 

policyholders or accrue to non-policyholders as well. 

5.	 An affordability program would likely induce some non-policyholders to purchase 

coverage, thus potentially increasing the costs from those estimated here. 

6.	 There must be further work to estimate the magnitude of such an effect. 

7.	 All policyholders eligible for a program will enroll in it. In reality, not all eligible
 

households will enroll, thus reducing the costs from those estimated here.
 

8.	 The number of enrollees and the size of the benefits depend on premiums and fees 

currently paid by policyholders. Increases in premium and fees, other things being equal, 

will increase the number of policyholders eligible for the program and the benefit per 

participant. 

We do not have sufficient data on the cost and premium impact of mitigation measures for each 

of our policies to analyze the potential costs of adding a mitigation grant and loan component on 

to each of the other design options. 

In addition, we modified our simulation approach for all design options for modeling PITI. The 

ACS reports what households spend on insurance, but it does not report an amount for a 

household in some cases, even though it purchased flood insurance according to the NFIP policy 

database. Thus, for these simulations, we added the cost of the flood insurance policy to the PITI 

totals reported in the ACS. As a result, the PITI ratios for policyholders without the program are 

somewhat higher than they are in those that underlie the distribution of the PITI ratio in Table 

2.9. Further work is needed to evaluate the sensitivity of the results to this practice. 

We describe the methods we used to develop these estimates in Appendix C. 

Design 1: Income-Based Premium Sharing 

Table 4.1 presents simulations of four different versions of the income-based sharing design. 

The first three rows list the three key parameter values assumed in each scenario: 

1.	 What level of benefit is provided to the lowest income households? 

2.	 What is the income cutoff, measured with respect to AMI, for households receiving 

maximum benefit? 

3.	 What is the income cutoff for receiving any benefit from the Federal Government? 

Recall that a household’s benefit falls linearly from the maximum to zero as household income 

increases from the level chosen for parameter 2 to the level chosen for parameter 3. 

37 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 4.1. Illustrative Scenarios for an Income-Based Premium Sharing
 

Program
 

Scenario 

A B C D 

Program Parameter 

1. Percent of policy cost 

paid by government for 10% 10% 100% 100% 

lowest income households 

2. Income cutoff for 10% 10% 70% 160% maximum benefit (% of AMI) 

3. Program eligibility cutoff 80% 165% 80% 165% (% AMI) 

Program Outcomes if Program Only Available to Policyholders in SFHA 

Number of HH receiving 469,000 1,090,000 469,000 1,090,000 benefit 

Total benefit paid per year $21 M $53 M $424 M $995 M 

Average Benefit per HH $45 $49 $906 $912 

Program Outcomes if Program Available to All Policyholders 

Number of HHs receiving 858,000 2,087,000 858,000 2,087,000 Benefit 

Total benefit paid per year $29 M $75 M $593 M $1,552 M 

Average benefit per HH $34 $36 $691 $744 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

AMI: Area Median Income; HH: households. 

Scenarios A and B are very minimal versions of the program. The government pays a maximum 

of 10 percent of the policy cost (premium plus fees), and this maximum benefit is available only 

to households with incomes less than 10 percent of AMI. Only low-income households are 

eligible to participate in Scenario A (households with income less than 80 percent of AMI), 

while Scenario B extends the program to moderate- and middle-income households (households 

with incomes less than 165 percent of AMI). Scenarios C and D provide much more substantial 

benefits to the same sets of households: The government pays the full policy cost for households 

below 70 percent and 160 percent of AMI, respectively. 

Table 4.1 presents estimates first assuming the program is only open to current policyholders in 

SFHAs (the middle of the table) and second assuming that program is open to all policyholders 

(the bottom of the table). The results for Scenario A show that 469,000 policyholders in SFHAs 

are eligible for the program and that annual benefit payments total $21 million, translating into 

$45 per beneficiary on average. The number of beneficiaries is around 28 percent of the 1.8 

million policyholders in SFHAs represented in the analysis. The number of beneficiaries rises to 

1.090 million in Scenario D when the program is restricted to SFHAs. 

Total benefits for this much more expansive program come in at slightly less than $1 billion per 

year, with average benefits around $912 per enrollee. The number of beneficiaries and total 

38 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

program costs increase considerably when the program is open to all 3.7 million residential 

policyholders, whether they live inside or outside of SFHAs (bottom rows of Table 4.1). 

Table 4.2 provides some initial information on the impact of the program on the amount paid for 

flood insurance by program participants and on our two affordability metrics. In Scenario D, for 

example, the average policy cost (premium plus fees) falls from $755 to $12. Because nearly all 

program beneficiaries in Scenario D receive the full policy cost, the median share of household 

income spent of flood insurance for program participants falls from 1.2 percent without the 

program to none with the program. Even with the large benefits, the median PITI ratio falls only 

slightly from 0.22 to 0.21 because flood insurance premiums are often not large compared with 

the other components of PITI. This design provides benefits to households that typically spend a 

low percentage of income on flood insurance and have modest PITI ratios. The median 

percentage of income spent of flood insurance without the program varies from 1.2 percent to 2.2 

percent, and the median PITI ratio without the program varies from 0.22 to 0.37. 

Table 4.2. Illustrative Scenarios for Program Available Both Inside and
 

Outside SFHA
 

(for program beneficiaries only)
 

Scenario 

Outcome 

A B C D 

Average policyholder cost 

With program $727 $719 $71 $12 

Without program $762 $755 $762 $755 

Median policyholder cost 

With program $474 $463 $0 $0 

Without program $490 $485 $490 $485 

Median of percentage of income spent on flood insurance 

With program 2.1% 1.1% 0% 0% 

Without program 2.2% 1.2% 2.2% 1.2% 

Median PITI ratio* 

With program 0.37 0.22 0.35 0.21 

Without program 0.37 0.22 0.37 0.22 

Number of program 858,000 2,087,000 858,000 2,087,000 participants 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

*Excludes households occupying a residence they do not own without payment of rent.
 

Design 2: Premium Burden-Based Benefit 

Table 4.3 presents simulations of three different versions of the income-based sharing design. 

The key parameters for a program based on premium burden are: 

1. The required contribution to flood insurance costs by income category; 

2. The income cutoff for receiving any benefit from the Federal Government. 

39 
 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

In Scenario A of Table 4.3, policyholders within incomes below 165 percent of AMI (which 

covers low, moderate, and middle-income households) would not pay any part of the policy 

costs. In Scenario B, which is more similar to how health care subsidies are structured, the 

eligible households would be required to increase their contribution with increased household 

income, reaching 4 percent for middle-income households. Scenario C provides the least 

generous benefit, with all eligible households required to contribute 4 percent of income toward 

the flood insurance premium before receiving the federal benefit.36 

Table 4.3. Illustrative Scenarios for a Premium Burden-Based Benefit
 

Program
 

Scenario 

A B C 

Program Parameter 

1. Required flood insurance payment 

as a percentage of household income 

Extremely low income 0% 0% 4% 

Very low income 0% 1% 4% 

Low income 0% 2% 4% 

Moderate income 0% 3% 4% 

Middle income 0% 4% 4% 

2. Program eligibility cutoff 165% 165% 165% (% of AMI) 

Program Outcomes if Program Only Available to Policyholders in SFHA 

Number of HH receiving benefit 1,090,000 408,000 211,000 

Total benefit paid per year $1,101 M $326 M $154 M 

Average benefit per HH $1,010 $799 $731 

Program Outcomes if Program Available to All Policyholders 

Number of HH receiving benefit 2,087,000 614,000 265,000 

Total benefit paid per year $1,576 M $398 M $170 M 

Average benefit per HH $755 $649 $642 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

AMI: Area Median Income; HH: households. 

As shown in the bottom portion of Table 4.3, the number of beneficiaries varies by around a 

factor of five across these very different parameterizations of the program. When households are 

not required to contribute to flood insurance, annual benefit payments inside the SFHA total just 

over $1.1 billion, and approximately 60 percent (1.090 million) of the 1.8 million policyholders 

in SFHA participate. The results for Scenario C lie at the other end of the spectrum, with 12 

percent (211,000) of policyholders participating. Extending the program to policyholders outside 

36Households paying 4 percent of income toward premiums would end up paying a higher percentage of income to 

premiums plus fees. 

40 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

the SFHA increases the number of beneficiaries and program cost. However, the costs and 

number of beneficiaries do not increase significantly in Scenario C because flood insurance 

premiums are lower outside SFHAs and, households are required to contribute a substantial share 

of income toward the premium before receiving a subsidy. 

As shown in Table 4.4, the average amount paid for flood insurance by program beneficiaries 

falls substantially. In Scenario B, for example, the average amount paid falls from $1,068 

without the program to $419 with the program. 

Table 4.4. Illustrative Scenarios for Burden-Based Benefit Program 

When Program Available Both Inside and Outside SFHA
 

(for program beneficiaries only)
 

Outcome 

Scenario 

A B C 

Average policyholder cost 

With program $0 $419 $861 

Without program $755 $1,068 $1,503 

Median policyholder cost 

With program $0 $220 $649 

Without program $485 $710 $1,309 

Median of percentage of income spent on flood insurance 

With program 0% 1.0% 4.0% 

Without program 1.2% 3.6% 6.5% 

Median PITI ratio* 

With program 0.21 0.42 0.56 

Without program 0.22 0.44 0.60 

Number of program 2,087,000 614,000 265,000 participants 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

*Excludes households occupying a residence they do not own without payment of 

rent. 

Scenarios B and C target households who spend a substantial portion of income on flood 

insurance and have high PITI ratios. For example, the median percentage of income spent on 

flood insurance is 3.6 percent for program participants without the program in Scenario B and 

6.5 percent in Scenario C. The median PITI ratios without the program are 0.44 and 0.60 for 

Scenarios B and C, respectively. By contrast, 50 percent of the beneficiaries in Scenario A spend 

less than 1.2 percent of income on flood insurance without the program and 50 percent have a 

PITI ratio of less than 0.22 without the program. The reason for these outcomes is that Scenario 

A opens the program to all policyholders with incomes less than or equal to 165 percent of AMI. 

Design 3: Housing Burden-Based Benefit 

The key parameters for the program based on housing burden are: 

41 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

1. The PITI ratio cutoff; and 

2. The income cutoff for receiving any benefit from the Federal Government. 

As discussed in Chapter 3, one of the advantages of this program is that program eligibility is 

based on practices in the lending industry. We determined the PITI ratio cutoff of 0.40 in 

Scenario B because of the mortgage industry standard in which loans that result in the PITI to 

exceed 40 percent of income are seldom approved. When the PITI cutoff is set to 0.40, 

households receive assistance for that part of the policy costs that causes their PITI ratio to 

exceed 0.40. Scenarios A and C allow the PITI ratio cutoff to range from 0.10 to 0.70. We 

previously stated that a small percentage of homeowners (4 percent) have PITI ratios above 0.70. 

In all scenarios, low, moderate, and middle-income households are eligible to participate in the 

program. 

Table 4.5. Illustrative Scenarios for a Housing Burden-Based Benefit Program 

Scenario 

A B C 

Program Parameter 

1. PITI ratio cutoff 0.10 0.40 0.70 

2. Program eligibility cutoff 165% 165% 165% (% of AMI) 

Program Outcomes if Program Only Available to Policyholders in SFHA 

Number of HH receiving benefit 926,000 288,000 120,000 

Total benefit paid per year $943 M $302 M $126 M 

Average benefit per HH $1,018 $1,048 $1,045 

Program Outcomes if Program Available to All Policyholders 

Number of HH receiving benefit 1,654,000 472,000 194,000 

Total benefit paid per year $1,293 M $394 M $162 M 

Average benefit per HH $782 $834 $835 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

NOTE: Program not open to households occupying a residence they do not own without 

payment of rent; AMI = Area Median Income.
 

In Design 3, 288,000 policyholders in the SFHA receive benefits under Scenario B (middle 

portion of Table 4.5). Annual benefits come to $302 million per year, with an average benefit per 

participating household of $1,048. The number of beneficiaries and annual benefit payments 

vary substantially as the program parameters change. 

As expected, the program targets households with high PITI ratios, except when the PITI ratio 

cutoff is low. For example, the median PITI ratio without the program is 0.62 in Scenario B and 

1.10 in Scenario C (“median PITI ratio” rows of Table 4.6). Scenario B and C also end up 

providing benefits to households that spend a substantial share of household income on flood 

insurance. The design reduces the PITI ratio somewhat for participating households and reduces 

the percentage of household income spent on flood insurance a great deal. Although this 

42 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

program provides benefits to households that tend to have a high PITI ratio and spend a 

substantial share of income on flood insurance, it does miss some households that may be of 

concern to policymakers. In particular, it may not provide benefits to retirees who have paid off 

their mortgages or low-income households that have inherited the property, mortgage-free. 

Table 4.6. Illustrative Scenarios for Impact of Housing BurdenBased Benefit When Program Is Available to All Policyholders 

(for program beneficiaries only) 

Scenario 

Outcome 

A B C 

Average policyholder cost 

With program $20 $60 $60 

Without program $801 $894 $895 

Median policyholder cost* 

With program $0 $0 $0 

Without program $509 $562 $561 

Median of percentage of income spent on flood insurance* 

With program 0% 0% 0% 

Without program 1.3% 2.8% 5.1% 

Median PITI ratio* 

With program 0.25 0.58 1.04 

Without program 0.27 0.62 1.10 

Number of program participants 1,654,000 472,000 194,000 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

*Excludes households occupying a residence they do not own without payment of 

rent. 

43 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

V. Administrative and Funding Options
 

FEMA administers the NFIP with private insurers participating in the Write Your Own (WYO) 

program. The NFIP has not been structured to assess eligibility for benefit assistance and deliver 

those benefits. As a result, we also worked with the workshop participants to develop both 

administration and funding options that could be used to implement the flood insurance 

affordability program design options. We asked workshop participants to consider (1) how to 

administer an assistance program inside and outside the NFIP, and (2) how to fund such an 

assistance program. This chapter discusses three administration options and three funding 

options that emerged from prior research and workshop discussions. 

The three administration options include the following: 

	 FEMA partners with the Internal Revenue Service (IRS) to administer the benefit 

assistance by either providing the benefit as a deduction on policyholders’ taxes or by 

providing the benefit directly to the insurance company at the time of purchase. 

	 FEMA’s NFIP Direct administers the benefit program, treating those eligible as a 

separate special handling group. The NFIP Direct could enlist the help of another federal 

agency to conduct the eligibility determinations. 

	 States and the Small Business Administration (SBA) administer the part of the benefit 

program providing mitigation grants and loans. 

The three funding options include the following: 

 Internally funding the program by collecting additional fees and further crosssubsidization. 

 Externally by receiving an appropriation from Congress that funds the assistance 

program. 

 A hybrid approach by securing funding from a combination of internal and external 

sources. 

We describe the various options and discuss their advantages and disadvantages in the remainder 

of this chapter. 

Administration Options 

Based on research and discussion at the workshops, we developed three administration options 

for implementing the four design options described in Chapter 3 and illustrated in the simulation 

model in Chapter 4. All of these options would benefit from communicating a policyholder’s 

full-risk rate even if policyholders are not required to pay the full-risk premium. Because price 

is an excellent signal of risk, communicating a policyholder’s full-risk rate could play an 

important role in communicating flood risk. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Option 1: IRS Tax Credit 

There are two main approaches for how to engage the IRS to implement an affordability design 

option subsidy. The most straightforward approach would be for the policyholder to pay the 

flood insurance premium and then receive the appropriate tax credit when they file income taxes 

in April of each year (version 1).37 

Advantages and Disadvantages 

The advantage of this administration option would be that once it is set up, is that the IRS would 

administer the program allowing FEMA to play an oversight role in executing this process. 

However, this approach faces certain disadvantages; first, households may not be able to pay the 

full premium at the start of the premium year and second, this approach is complicated and 

requires that the insurance company or FEMA determine how much to collect from the 

policyholder and reconcile payments received from the IRS. In addition, the process of IRS 

agreeing to implement this programs—and FEMA entering into an agreement with IRS, setting 

up and implementing the procedures—would be a complex and extensive effort. In addition, as 

workshop participants noted, it may be difficult to obtain data from the IRS necessary to monitor 

the program and track the total amount of tax credits issued. 

Option 2: FEMA through NFIP Direct 

In this administrative option, policyholders eligible for an affordability program could be added 

to FEMA’s NFIP Direct as another special handling group, whose policies are written and 

serviced through NFIP Direct. NFIP Direct writes and services approximately 13 percent of the 

NFIP’s flood insurance contracts and services groups of policies such as Severe Repetitive Loss 

Properties and Group Flood Insurance Policies. Under an NFIP Direct administered program, 

FEMA would establish the eligibility criteria using one of the design options previously 

described and establish a relationship with another agency (like HUD or IRS) to determine 

eligibility. The policy declaration page could show the full flood premium, could show the 

amount of the affordability credit (the subsidy), and then could show the reduced amount owed 

by the policyholder. The WYO program allows participating private insurers to write and service 

the standard flood insurance policy (the NFIP policy), because private insurers largely do not 

offer residential flood insurance. For insurance companies not participating in the WYO 

program, their agents can still obtain NFIP flood insurance coverage for their policyholders by 

working through NFIP Direct on their clients’ behalf. 

After discussions held at the second workshop, we determined that NFIP Direct presents a more 

feasible option for FEMA to administer an affordability program than using WYOs. There are 

several reasons that make it difficult for private insurers to administer an affordability program. 

First, WYOs are required to receive the full flood insurance premium payment at the beginning 

of a household’s policy year. In order for a WYO to change how they accept payments from 

policyholders and accept a benefit payment, FEMA would have to write new rules to accept 

partial payments. The WYOs also have concerns related to collecting personal information such 

as income. Agents also do not want to be a conduit for the handling of money between the 

37This would be a similar model to the first-time homebuyer’s tax credit. 

45 
 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

government and potential policyholders. As a result, administering the program through the 

WYOs would be much more challenging to navigate than if FEMA administered the program 

through NFIP Direct. 

Advantages and Disadvantages 

The primary advantage that FEMA’s NFIP Direct administration option has over the IRS option 

is that FEMA would have increased control of the program. Thus, if modifications had to be 

made to increase or decrease eligibility criteria or subsidy amount, the adjustments could be 

made through the NFIP Direct. Making adjustments or mid-course corrections could prove 

difficult when utilizing the IRS. Another advantage in administering the program through the 

NFIP Direct is lowered expense because of internally contained processes and logistics as 

opposed to a WYO administered program. The program could be relatively seamless from the 

policyholder’s perspective because NFIP Direct would need to interact with the agency 

conducting eligibility determinations. NFIP Direct and the assisting agency determines eligibility 

and the insurance agents continue their relationships with policyholders to help them with their 

insurance needs without taking on affordability program legal and financial risks. Agents would 

be able to place their business with NFIP Direct and policyholders applying for assistance could 

retain a relationship with their trusted agents. 

A disadvantage of the NFIP Direct option is the NFIP Direct would rely on another agency for 

the eligibility determinations and FEMA would require additional resources and staff with 

relevant skill sets to work with the assisting agency on eligibility determinations. In addition, 

policyholders would face an additional administrative burden to provide required documents, 

unless eligibility was determined through other means. 

Option 3: FEMA with Assistance from States and Small Business 

Administration 

While the other administration options are applicable to any of the design options, this 

administration option is restricted to the mitigation grant or loan add-on design option. As noted 

earlier, mitigation is an important tool to reduce the risk and the impact of flooding; however, 

NFIP does not provide loans for mitigation assistance directly to policyholders. Operating such a 

program could require FEMA to devote significant resources to implement the program, in 

addition to any grants or loans it might provide. For example, FEMA would be required to 

increase its resources available to evaluate mitigation activities for cost-effectiveness, hire staff 

to monitor implementation of mitigation projects, and certify the completion of that mitigation 

projects. FEMA would most likely need to partner with other agencies to execute the loan 

program. 

The NFIP also lacks the authority to make loans to policyholders, although FEMA may be able 

to enlist the SBA to administer a mitigation loan program, akin to what the SBA already 

provides for post-disaster mitigation loans.38 According to workshop participants, FEMA could 

38Another federal agency option for administering a mitigation loan program could be HUD given that the Federal 

Housing Administration currently administers the 203K Rehabilitation Mortgage program that allows homeowners 

to borrow up to $35,000 to repair a home damaged from flooding or to mitigate against future flood damage. 

46 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

model a mitigation program after DOE’s Weatherization Program. This program works with 

state and local agencies to assess the viability of weatherization measures and to implement 

them. FEMA does not have those formal relationships established currently. 

Advantages and Disadvantages 

The main advantage of a mitigation program is relevant mitigation activities will help to reduce 

the risk of flooding, which lowers flood insurance premiums for policyholders and potential 

future payouts by the Federal Government in the form of subsidies or disaster relief. The main 

disadvantage for FEMA is that the agency would have to establish and rely on partnerships with 

other state and local agencies that have the capacity to manage a grant and loan program, as well 

as develop a mechanism to monitor their work on the affordability program. Another 

disadvantage is that the amount of funding may not cover demand, so the states will need a 

mechanism to prioritize who would receive assistance. 

Comparison of Administration Options 

Table 5.1 summarizes the different administration options, compares their advantages and 

disadvantages, and provides a short description of the policyholder’s experience. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table 5.1. Summary of Advantages and Disadvantages of Administration Options 

3. FEMA with 1A. IRS Tax Credit 1.B. IRS Tax Credit 2. FEMA Through Assistance from (Version 1) (Version 2) NFIP Direct States or SBA 

Overview Households receive Benefits provided to NFIP Direct FEMA partners with 

program benefits when insurer by IRS as a administers the state agencies and/or 

it files federal taxes in pre-tax credit program and enters SBA to administer the 

April of each year into an agreement with program 

another agency to 

determine eligibility 

and benefit levels 

Advantages	 FEMA plays oversight, 

not administrative, role 

NFIP continues to 

price and sell policies 

as before 

Disadvantages May be difficult to IRS or FEMA must Lack of direct control Coordination and 

monitor IRS’s

implementation of the 

determine how much 

to collect from a 

over eligibility 

determination process 

oversight costs of 

partnering with state 

program and 

determine subsidy 

policyholder and 

reconcile payments 

Cost of coordinating 

with assisting agency 

and local agencies and 

the SBA 

payments 

Households may not 

made to insurers 

Complexity of IRS 

Amount of funding 

may not cover 

be able to front flood 

insurance premium 

payments insurers demand, requiring 

applicant prioritization 

Customer 

Experience 

Household files 

required forms with 

IRS at tax time 

Household registers 

with IRS to determine 

benefit and then 

Agent refers 

household to the NFIP 

Direct; household 

Household contacts 

state or local agency 

for mitigation grants 

purchases policy from 

the NFIP Direct or 

registers with and 

provides documents to 

and SBA for lowinterest loans 

WYOs assisting agency 

FEMA plays oversight, 

not administrative, role 

NFIP continues to 

price and sell policies 

as before 

Household does not 

have to front full 

premium 

Relies on experienced 

agency to determine 

eligibility 

Providing benefits only 

through NFIP Direct 

(as opposed to WYOs) 

reduces administrative 

costs and simplifies 

process 

Relies on experienced 

state and local 

agencies to evaluate 

and approve mitigation 

measures 

Employs existing SBA 

lending capabilities to 

make low-interest 

loans; definition of 

housing burden can be 

based on lending 

industry practices 

Funding Options 

Based on information provided by workshop participants, we identified three primary 

mechanisms to fund an affordability program for NFIP. First, an affordability program could be 

funded through policyholder premiums and fees. Second, Congress could provide an 

appropriation to fund the affordability program. Finally, Congress could enact a mix of these two 

options. We discuss these options below: 

48 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Option 1: NFIP Funded Affordability Program 

A program funded through additional policyholder fees or through cross-subsidization has the 

advantage of being internally contained within NFIP. The program would be contained within a 

single agency and program from both a legislative and budgetary perspective. The downside to 

this option is that existing discounts and cross-subsidies are already creating undue pressure on 

the solvency and sustainability of the program. Currently, the NFIP receives its funding from the 

NFIP premiums and fees collected from policyholders. In addition, NFIP policyholders pay for 

mitigation grants and some mapping activities through their premiums and fees. If NFIP requires 

policyholders to fund an affordability program, annual rates or fees for at least some 

policyholders would have to increase further. Because some policyholders already consider these 

rates as unduly burdensome, the increases could create a more onerous affordability challenge 

for the program. 

If premiums increased because Congress chooses to fund an affordability program from 

policyholder fees, the NFIP could eventually face a situation in which the cost of a low-risk 

policy would be greater than the benefit a policyholder gets from holding a policy—in these 

situations, many such policyholders would drop their coverage. This situation would result in 

adverse selection, because only those policyholders who consider the risk of flooding greater 

than or equal to their willingness to pay—i.e., they believe the coverage is worth the cost of 

increased insurance—would maintain flood insurance. Those who have lower risk would drop 

their coverage rather than pay for a policy they do not perceive as priced accordingly. 

In addition to driving away low-risk policyholders, an affordability program funded fully by 

NFIP policyholders may entice high-risk, cost-burdened homeowners to enter the program 

without paying their full risk. While this would help the NFIP achieve the goal of greater 

participation in the program, it would serve to further geographically concentrate risk. 

The unintended consequence of both non-mandatory purchase policyholders leaving the program 

and high-risk policyholders entering the program is that it could reduce the NFIP’s ability to 

achieve a sound financial framework. FEMA assumes that most of the non-mandatory purchase 

structures are low-risk or non-SFHA and that the occupants of those structures would perceive 

their risk to be low from their experience, proximity to a flooding source, or FEMA’s Flood 

Insurance Rate Maps. Further, an adverse selection spiral could result in a situation in which the 

average risk of the group increases as lower-risk properties opt out, leaving this group essentially 

underfunded by the premiums paid. 

Option 2: Congressionally Appropriated Affordability Program 

External funding could allow FEMA to implement an affordability program without further 

degrading the solvency and sustainability of the NFIP or creating additional affordability 

challenges for current or prospective policyholders. This option would require legislative action 

to appropriate funds to an affordability program and allow the program to expand and contract 

depending on political will and available funding. One challenge is that these annual 

appropriations may not be offered consistently, thereby leaving FEMA unable to consistently 

deliver a program to those who are eligible for assistance. Demand for assistance would also be 

inconsistent annually because the ability to afford flood insurance is counter-cyclical. Generally, 

when the macro economy is at its worst, demand for assistance programs are at their highest. 

49 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Demand for an affordability program is also likely to expand as premiums rise because of 

movement toward risk-based premiums and changes in physical risk. 

Option 3. Hybrid Funded Affordability Program 

A hybrid program whereby some of the funding comes directly from NFIP and another portion 

comes from other sources is an intermediary between an NFIP funded versus congressionally 

appropriated affordability program. This may be legislatively more attractive, because full 

funding of the program would not have to come from other sources. However, as was discussed 

in the NFIP funded program, there are already undue pressures on the solvency and affordability 

of the NFIP because of existing discounts and cross-subsidies. Having the NFIP fund an 

affordability program, even if only in part, will continue to create more affordability challenges. 

50 
 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

VI. Conclusions
 

Congress faces important policy challenges as it considers options for legislating a program to 

make flood insurance accessible and affordable and to enable policyholders and communities to 

rebound more quickly and fully from flooding events than they would without flood insurance. 

Part of the challenge has been the lack of representative nationwide data to assess the extent of 

the affordability challenge and to quantify the costs and benefits of potential solutions. To 

address this shortcoming, FEMA developed a first-of-its-kind database that links NFIP policy 

information with household income and housing cost information from Census. These data 

provide policymakers with a much better understanding of the extent of the problem and of the 

particular population groups most in need of assistance to afford their flood insurance premiums. 

Because there is a no widely accepted definition of flood insurance affordability, we developed 

several alternatives based on a household’s cost burden or ability to pay. Each alternative has 

advantages and disadvantages, with ramifications for determining who is and who is not in need 

of assistance. The data developed from this project is intended to provide helpful information on 

the number of households for whom flood insurance may be difficult to afford based on the 

various measures. 

A number of different options exist for designing, administering, and paying for a flood 

insurance affordability program. The program design options vary in the types of households 

targeted and the amount of information program applicants are required to provide. Some 

program designs can provide benefits to a broad range of households, but they may also end up 

providing benefits to households for whom flood insurance is not financially burdensome 

according to other affordability metrics. Others can more narrowly target benefits, but they may 

do so at the cost of excluding households that some stakeholders may deem in need of assistance. 

We also found that flood insurance affordability programs have the ability to create perverse 

incentives. For example, some version of the designs examined rewards households who make 

risky financial decisions, such as taking out large mortgages that strain their ability to pay. Other 

design options end up encouraging lower-income households eligible for assistance to purchase 

properties in very risky areas, such as where flood insurance premiums are high, but where 

property values and mortgages are relatively low. 

For all the program designs, we emphasize the importance of communicating information to 

policyholders about the full risks (and the associated full-risk flood insurance rates) of living in 

flood-prone areas. We also emphasize the importance of targeting potential policyholders in 

addition to current policyholders for assistance. A flood insurance affordability program will 

presumably make the purchase of flood insurance more feasible and more attractive for 

households that currently do not carry flood insurance and thus are not able to recover quickly or 

as fully after a flood event—often relying on a combination of charity and federal disaster 

assistance to partially recover. However, good public policy must balance the undeniable 

benefits of increased flood insurance take-up with increased program costs due to larger program 

enrollment of policyholders paying less than full-risk rates. 

The options identified for administering and paying for the program also vary in terms of 

advantages and disadvantages. One of the underlying challenges for all the administrative 

options is each requires FEMA to expand the current number of NFIP staff and requires it to 

51 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

obtain additional information, such as household income and housing burden, to determine who 

is eligible. As far as funding options are concerned, policymakers must weigh several factors 

when considering how to pay for an affordability program. With an appropriation, FEMA would 

develop an affordability program commensurate with the size of the appropriation. If NFIP 

provides the funding through a cross-subsidy, FEMA would have to raise rates on other 

policyholders to pay for the program. If NFIP provides the funding through a pure subsidy, it 

will not collect premiums and fees necessary to pay claims in the future. An affordability 

program funded by NFIP premiums and fees, regardless of mechanism, would reduce the NFIP’s 

ability to cover the cost of certain flood events, create additional affordability challenges, and 

work against creating a sound financial framework for the NFIP. 

In creating a flood insurance affordability framework, we developed a set of simulation models 

that we used to estimate program costs and outcomes for a variety of program designs and 

parameterizations. Such models are very useful for estimating the number of beneficiaries, 

program costs, and program outputs with respect to various affordability metrics. The estimates 

made during the study illustrate the wide variation in costs across different program designs and 

the sensitivity of program costs and outcomes conforming to the details of the program design. 

The estimates provide some insight into the types of households that do and do not receive 

benefits from the various alternatives, but there is a need for more detailed analyses to better 

understand the types that households that receive benefits and the types the designs overlook. In 

addition, for simplicity, our analysis focused on current policyholders, but there must be 

additional work to better understand the extent to which an affordability program would lead 

non-policyholders to sign up for flood insurance. The model simulations also do not specify 

important features of an affordability program, such as whether the program will be limited to 

properties in high-risk flood zones, to current residents of eligible properties, to primary 

residences, or to homeowners (as opposed to renters). These simulation models are useful for 

exploring specifications that are more detailed. 

Flood insurance is a valuable tool that helps survivors recover in the aftermath of devastating 

flood events and reduces federal disaster expenditures on individual assistance. Some 

policyholders and non-policyholders at high risk of flooding face critical tradeoffs between 

purchasing flood insurance and basic necessities. FEMA believes that this framework will help 

members of Congress and other stakeholders think through the advantages and disadvantages of 

different options for a flood insurance affordability program. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Appendix A. Data and Statistical Methods
 

FEMA worked with the United States Census Bureau (Census) to learn about NFIP policyholder 

and potential policyholder incomes by matching NFIP policyholder data to the American 

Community Survey (ACS). The ACS is a relatively new survey conducted by Census that uses a 

series of monthly samples to produce annually updated estimates for the same small areas 

(census tracts and block groups) formerly surveyed via the decennial census long-form sample. 

Academics, policy communities, and government agencies utilize the ACS. Census conducts the 

ACS throughout the United States and in Puerto Rico, where it is called the Puerto Rico 

Community Survey (PRCS).39 The ACS includes households that have residents who, as of the 

date of the interview, either are living or intend to live at the address for more than 2 months. 

For example, if someone had just recently moved into a new home they would be included in the 

sample address because they intend to live there for more than 2 months. Alternatively, if no one 

is living at the sampled address at the time of the interview, even if someone spends more than 

two months of the year there (such as a vacation home), the housing unit would be considered 

vacant. 

40 ACS data allows FEMA to quantify affordability challenges and determine the scope of 

potential affordability programs. 

FEMA’s data included NFIP policyholders who had active flood insurance policies for any 

duration during calendar year 2015. FEMA’s sample included more policyholders than are 

reported in any publicly available dataset because publicly available sources capture a snapshot 

of NFIP policies as of one specific day. We provided this additional data to maximize the 

chances of matching with the data Census collected throughout the year. 

Please note that throughout the framework, FEMA calculated column totals based on the raw 

data from each row, then rounded each individual row and the column total for ease of reporting. 

As a result, column totals may differ slightly from the sum of each reported row, particularly in 

Chapter 2. 

Limitations of ACS Data 

Before we describe how we linked the NFIP and ACS data, we review some limitation of the 

ACS data for the purposes of analyzing flood insurance affordability. 

All self-reported survey data, including the ACS, comes with a variety of limitations. For 

example, self-report income may differ from the administrative records of income that would be 

used to determine program eligibility. Respondents may incorrectly recall their income or may 

forget sources of income. Misreported income could cause ACS-based estimates of total 

program cost to be incorrect due to over- or under-estimating the number of individuals eligible 

for the program. Relative to the administrative records in the National Income and Product 

39ACS Design and Methodology Report, U.S. Census Bureau, www.census.gov. 

https://www.census.gov/programs-surveys/acs/methodology/design-and-methodology.html (accessed, July 12,
 

2017.)
 

40Ibid. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Accounts, the ACS tends to under-estimate income.41 This could cause our analysis to overestimate program costs by over-estimating the number of eligible homeowners. 

Similarly, self-reported survey data may over- or under-estimate the costs associated with home 

ownership. The direction of this bias is less certain, as many costs associated with 

homeownership do not have administrative data that can be compared to the reported survey 

data. For under-reporting, we do know that the estimated annual insurance costs for many 

households are lower than the household’s annual flood insurance premium. Certain types of 

respondents may also be less likely to answer certain questions. Research on another Census 

survey found respondents with higher income tended to answer more survey questions in 

general.42 If respondents, particularly lower income respondents, are less likely to report housing 

costs, we might under-estimate their housing burden and hence under-estimate their program 

eligibility. 

FEMA and ACS also use different definitions of residency. NFIP focuses on the “primary 

resident” of a home. For the NFIP, a primary residence is one in which the occupant lives more 

than 50 percent of the year. For ACS, the Census Bureau uses the concept of "current residence" 

to determine residents of sample housing units. The basic idea behind “current resident” is that 

everyone who is currently living or staying at an address, or intends to live there, for more than 

two months is considered a current resident of that address. Persons away from their residence 

for two months or less, whether in the United States or overseas, on a vacation or on a business 

trip, are a "resident" at the address, and Census considers the unit as occupied and the residents 

eligible for inclusion in the survey. Persons away from their residence for more than two months 

at the time of the interview are not included (for example, college students away at school, 

persons with two homes who are living at the other home at the time of the interview).For the 

ACS, if no one is determined to be a current resident in the sampled housing unit, Census 

classifies it as "vacant."43 

As noted above, Census does not define primary resident the same as FEMA.44 For that reason, 

we did not discern between primary residence and non-primary residence, as defined by FEMA, 

41Rothbaum, Jonathan L., “Comparing Income Aggregates: How do the CPS and ACS Match the National Income 

and Product Accounts, 2007-2012,” SEHSD Working Paper 2015-01 (2015). Available at 

https://www.census.gov/content/dam/Census/library/working-papers/2015/demo/SEHSD-WP2015-01.pdf 

42Hedengren, David, and Thomas Stratmann. "The Dog that Didn't Bark: What Item Nonresponse Shows about 

Cognitive and Non-Cognitive Ability." (2012). 

43There are a few exceptions to the "two-month" rule: (1) Persons Without Another Place to Stay -- Anyone staying 

at a residence who does not have another place to stay, even if they are at the residence for two months or less, are 

current residents, (2) Children Away at School -- Children (below college age) who are away at boarding school or 

summer camp for more than two months are always current residents of their parents' homes. College students 

establish current residency using the two-month rule, (3) Children in Joint Custody -- Children who live under joint 

custody agreements and move between residences are current residents of the sampled housing unit where they are 

staying at the time of the interview, and (4) "Commuter Workers" -- People who stay at a residence close to work 

and return regularly to another residence to be with their family are always considered current residents of the 

family residence, not the work-related residence. For more information, see “Frequently Asked Questions,” U.S. 

Census Bureau, accessed, August 10, 2017. 

https://ask.census.gov/prweb/PRServletCustom?pyActivity=pyMobileSnapStart&ArticleID=KCP-2892. 

44For FEMA, a primary residence is one in which a resident lives at least 50 percent of the year. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

in our analysis. Additionally, we excluded non-residential NFIP policyholders from our 

analysis. Furthermore, the costs and number of participants that we estimated in our models 

assume residential households are either primary or non-primary. Our model estimates may 

deliver benefits to non-primary residence households. 

Matching NFIP and ACS Data 

Census created two unique identification numbers for NFIP policyholders, one derived from 

NFIP policyholders’ identity and the other by location.45 FEMA used the unique identification 

numbers to match policyholder data with 2015 one-year estimates of ACS households. Using the 

matched data, FEMA identified ACS households that have flood insurance, whether they reside 

in or out of a Special Flood Hazard Area (SFHA), and whether they reside in a coastal or riverine 

area. FEMA included NFIP residential policyholders and removed business policyholders and 

other non-residential policyholders. FEMA excluded ACS residential households that did not 

have a reported adjusted household annual income or had an adjusted household annual income 

of zero or below from our analysis. 

The NFIP sells contracts for multi-family residences called RCBAP or Residential 

Condominium Building Association Policy policies. These policies cover damage to the 

condominium complex, not damage to units owned by individuals. The policy for the building 

association and the individual unit owner policies are at the same geographic location and appear 

as one contract in the NFIP database. For the purposes of our analysis, we assumed that in multifamily residences with an NFIP policy which responded to the ACS the respondent was 

representative of all households living in that residence. However, we did not modify the 

premium paid by this household to reflect their proportion of the premium. 

There were 4,508,338 residential NFIP policyholders who had active policies at any time during 

calendar year 2015.46 We matched 64,703 of the 4.5 million policyholders to ACS households by 

identity, not location. Using Census assigned weights; we calculated a weighted sample of 

3,674,866 NFIP policyholders, which underestimates the true population size. 

Representativeness of Matched Sample 

To understand whether our weighted sample is an accurate representation of the actual number of 

NFIP residential policyholders, we show the comparisons of different sub-categories between 

our populations and the estimated population. We also tested whether the weighted sample of 

NFIP policyholders represented the same types of households as the actual population of 

policyholders. We selected several subsets of the weighted sample and compared their 

proportions with the proportions of the actual population. Furthermore, we calculated the 

standard error of the different subsets to estimate a 90 percent confidence interval to determine if 

45See “The Person Identification Validation System (PVS): Applying the Center for Administrative Records 

Research and Applications’ (CARRA) Record Linkage Software”, Accessed August 22, 2017. 

https://www2.census.gov/programs-surveys/acs/tech_docs/pums/accuracy/2015AccuracyPUMS.pdf. 

46We used the term policies to mean Contracts in Force. 

55 
 

 

 

 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

the weighted sample is different from the actual population of NFIP policyholders.

47 In other 

words, we determined whether our weighted sample is representative of the actual population of 

NFIP policyholders.48 

In testing the applicability of ACS weighting to the NFIP policyholder base, we approximated 

the standard error (SE) for NFIP premiums by using 80 different replicate weights values 

following the formula Census provided. 

Formula A.1: Approximating the Standard Error 

Using the SE, we calculated the Margin of Error (ME) to estimate the 90 percent confidence 

interval by 

1.	 multiplying the SE by 1.645 and 

2.	 adding or subtracting the ME to or from the weighted variable of interest (See formula X 

above). 

Formula A.2: Calculating the 90% Confidence Interval 

Then, we compared the upper and lower bounds of the 90 percent confidence interval to the 

NFIP premiums of different subgroups in the population. 

Table A.1 reports the results of our analysis. The weighted sample underestimates the number of 

single-family homes and overestimates the proportion of single-family homes (relative to 2-4 

family homes and other family homes). The weighted sample also slightly over-represents 

policyholders outside of the SFHA (relative to policyholders within the SFHA). 

47Standard error is a statistical term that measures the accuracy with which a sample represents a population. 

Confidence interval indicates a range of values that is likely to encompass the true value. More formally, you 

calculate the confidence interval around your sample statistic so that it has a specified chance of surrounding (or 

containing) the value of the corresponding population parameter. 

48See pdf attached PUMS Accuracy of the Data (2015) 

56 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.1. Comparison of NFIP Portfolio of Residential Policies with
 

Weighted Sample of Policyholders
 

NFIP Residential Weighted Sample of NFIP 

Policyholders Residential Policyholders 

Number Percentage Number Percentage 

(in thousands) of Total (in thousands) of Total 

Total 4,508,338 100% 3,647,866 

In SFHA 2,358,552 52% 1,774,642 49% 

Outside SFHA 2,149,786 48% 1,873,224 51% 

Single family 4,063,009 90% 3,480,076 95% homes 

2-4 family homes 218,432 5% 102,507 3% 

Other family home 226,897 5% 65,283 2% 

California 285,947 6% 266,793 7% 

Florida 1,389,670 31% 1,084,605 30% 

Louisiana 461,382 10% 391,264 11% 

South Carolina 162,952 4% 109,032 3% 

Texas 621,650 14% 550,286 15% 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

For the majority of sub-categories in Table A.1, the difference is one or two percentage points. 

The biggest difference is for single family homes at 5 percentage points, and these results 

suggest that our weighted sample over-estimates single family homes and under-estimates 2-4 

family and other family homes. This over-estimation of single family homes is likely due to 

single family homes being more easily matched to a corresponding ACS sample. In the case of 

multi-family homes, it is more likely that the identity associated with the policy does not match 

the identity of the resident. Because our sample has fewer multi-family units than the 

population, we underestimate the proportion of multi-family residences and overestimate the 

proportion of single family residences. 

Income Differences between Different Groups 

FEMA compared incomes across a number of different subgroups (Table A.2). First, FEMA 

compared incomes between ACS households that are in and out of the SFHA by state. Second, 

FEMA compared incomes between ACS households with and without flood insurance by state. 

Third, FEMA compared incomes between ACS households with and without flood insurance 

that reside in an SFHA by state and households that reside outside an SFHA by state. 

Additionally, FEMA compared incomes between ACS households with and without a mortgage 

and between flood risk areas, i.e. coastal and riverine. 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.2. ACS Household Groups 

Category Sub-Groups 

Homeowner 

With mortgage 

Without mortgage 

Flood Risk Area 

Coastal 

Riverine 

Special Flood Hazard Area 

Inside 

Outside 

Policyholder 

Yes 

No 

FEMA ran multiple tests to determine if the difference in income between groups was 

statistically significant. FEMA used the Wilcoxon Rank Sum Test, a non-parametric statistical 

test, to test for a difference in household income between specified groups at both the national 

and state level. FEMA chose the Wilcoxon Rank Sum Test because of the small sample sizes of 

the groups tested and the presence of extreme values, outliers, and a non-normal distribution of 

income values. We note that states with small sample sizes, which require cautious 

interpretation. Similarly, we used median income instead of average income in statistical tests 

because of outliers and non-normal distribution in the raw data. 

After weighting the sample, we estimated the median income for 1.9 million ACS households 

residing in or out of the SFHA. We then calculated the differences in median incomes between 

those groups for 52 states or territories regardless of whether the household had flood insurance 

(Table A.2). At the national level, incomes of households residing in the SFHA were 

significantly different than income of households outside the SFHA (W = 22.642, p < 2.2e-16, 

n=1.9million). We identified nine states where the weighted household median income was 

greater inside an SFHA than outside and 43 states where weighted household median income 

was greater outside an SFHA. Further, statistical tests determined that 16 of the 52 states did not 

have a statistically significant difference in weighted income between those in and out of the 

SFHA. For these 16 states, despite having a difference in median income between households 

inside and outside the SFHA, the difference in income between groups was not statistically 

significant at a 95 percent confidence level (Table A.3). 

Table A.3. Wilcoxon Rank Sum Tests Results, Difference in Income for Households Residing
 

Inside versus Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W pvalues 

Statistically 

Significant 

Alabama 

in 

out 

48,880 

1,573,134 

$41,334 

$45,957 

$4,623 2.17 0.03 yes 

Alaska 

in 

out 

5,694 

199,823 

$97,095 

$76,506 

-$20,589 -2.63 0.01 yes 

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An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.3. Wilcoxon Rank Sum Tests Results, Difference in Income for Households Residing
 

Inside versus Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W pvalues 

Statistically 

Significant 

Arizona 

in 54,624 $49,585 $2,765 0.93 0.35 no 

out 2,199,916 $52,350 

Arkansas 

in 46,085 $34,246 $9,213 5.51 < .001 yes out 979,720 $43,459 

California 

in 329,551 $54,243 $10,998 9.72 < .001 yes out 11,368,417 $65,241 

Colorado 

in 31,050 $50,069 $14,998 5.42 < .001 yes out 1,891,845 $65,067 

Connecticut 

in 45,231 $70,042 $5,041 0.32 0.75 no 

out 1,168,545 $75,083 

Delaware 

in 13,607 $69,142 -$7,070 -1.75 0.08 no 

out 319,079 $62,072 

District of 

Columbia 

in 

out 

4,036 

245,977 

$46,789 

$75,119 

$28,330 1.32 0.19 no 

Florida 

in 1,593,892 $53,396 -$3,338 -9.53 < .001 yes out 5,021,391 $50,058 

Georgia 

in 86,814 $52,069 $212 -0.11 0.91 no 

out 3,089,037 $52,281 

Hawaii 

in 30,011 $55,075 $21,355 4.75 < .001 yes out 353,425 $76,430 

Idaho 

in 17,849 $48,855 $126 -0.92 0.36 no 

out 511,049 $48,981 

Illinois 

in 76,366 $52,090 $8,014 6.35 < .001 yes out 4,368,360 $60,104 

Indiana 

in 60,107 $45,046 $6,129 3.63 < .001 yes out 2,288,900 $51,175 

Iowa 

in 23,476 $49,434 $5,677 2.30 0.02 yes out 1,075,133 $55,111 

Kansas 

in 26,725 $45,071 $10,002 4.96 < .001 yes out 984,245 $55,073 

Kentucky 

in 60,474 $35,756 $10,361 6.16 < .001 yes out 1,506,151 $46,117 

Louisiana 

in 462,149 $48,064 -$1,594 -2.55 0.01 yes out 1,099,310 $46,470 

Maine 

in 9,832 $60,906 -$8,825 -1.97 0.05 yes out 499,616 $52,081 

59 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.3. Wilcoxon Rank Sum Tests Results, Difference in Income for Households Residing
 

Inside versus Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W pvalues 

Statistically 

Significant 

Maryland 

in 35,009 $70,096 $6,902 1.34 0.18 no 

out 1,951,314 $76,997 

Massachusetts 

in 63,457 $62,773 $9,420 4.09 < .001 yes out 2,276,794 $72,193 

Michigan 

in 60,817 $48,885 $3,187 1.79 0.07 no 

out 3,339,435 $52,072 

Minnesota 

in 22,608 $62,525 $2,514 0.49 0.62 no 

out 1,970,646 $65,039 

Mississippi 

in 61,593 $37,049 $4,996 2.54 0.01 yes out 927,354 $42,045 

Missouri 

in 45,511 $38,039 $13,314 8.28 < .001 yes out 2,126,079 $51,353 

Montana 

in 10,669 $43,737 $6,329 1.18 0.24 no 

out 353,459 $50,066 

Nebraska 

in 21,928 $44,988 $10,802 4.30 < .001 yes out 657,148 $55,789 

Nevada 

in 18,833 $54,693 -$297 0.12 0.91 no 

out 939,988 $54,397 

New Hampshire 

in 11,344 $61,152 $10,212 1.50 0.13 no 

out 474,134 $71,364 

New Jersey 

in 181,439 $70,085 $5,009 2.87 < .001 yes out 2,698,667 $75,093 

New Mexico 

in 44,679 $40,045 $7,005 4.15 < .001 yes out 651,141 $47,049 

New York 

in 194,970 $63,410 -$1,333 -1.38 0.17 no 

out 6,458,261 $62,077 

North Carolina 

in 92,977 $47,003 $1,457 0.84 0.40 no 

out 3,321,140 $48,460 

North Dakota 

in 8,863 $70,735 -$11,839 -2.09 0.04 yes out 251,556 $58,896 

Ohio 

in 75,622 $43,244 $8,817 5.51 < .001 yes out 4,273,072 $52,061 

Oklahoma 

in 32,636 $43,979 $5,087 1.99 0.05 yes out 1,262,413 $49,066 

Oregon 

in 43,132 $49,047 $6,785 3.64 < .001 yes out 1,386,760 $55,832 

60 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.3. Wilcoxon Rank Sum Tests Results, Difference in Income for Households Residing
 

Inside versus Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W pvalues 

Statistically 

Significant 

Pennsylvania 

in 99,252 $46,053 $10,672 7.76 < .001 yes out 4,486,578 $56,725 

Puerto Rico 

in 100,639 $20,023 $890 1.52 0.13 no 

out 949,754 $20,913 

Rhode Island 

in 11,896 $59,738 $1,581 -0.65 0.52 no 

out 360,235 $61,318 

South Carolina 

in 111,177 $68,226 -$20,986 -12.60 < .001 yes out 1,540,051 $47,240 

South Dakota 

in 13,437 $37,698 $17,134 6.21 < .001 yes out 285,043 $54,832 

Tennessee 

in 37,681 $43,418 $4,648 1.98 0.05 yes out 2,240,759 $48,066 

Texas 

in 429,168 $47,399 $9,287 10.27 < .001 yes out 7,961,226 $56,686 

Utah 

in 8,022 $56,289 $7,800 2.00 0.05 yes out 842,804 $64,089 

Vermont 

in 7,412 $49,033 $9,445 2.25 0.02 yes out 232,255 $58,479 

Virginia 

in 87,411 $56,376 $11,246 5.51 < .001 yes out 2,811,390 $67,622 

Washington 

in 51,164 $49,059 $14,918 8.06 < .001 yes out 2,284,761 $63,977 

West Virginia 

in 55,002 $38,613 $4,952 4.49 < .001 yes out 629,752 $43,565 

Wisconsin 

in 27,969 $51,071 $5,503 2.92 < .001 yes out 2,128,382 $56,575 

Wyoming 

in 5,064 $50,373 $9,715 2.40 0.02 yes out 200,161 $60,088 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

Note: Data weighted using ACS sample weights. 

Using the Wilcoxon Ranked Sum test at a 95 percent confidence level, we selected only those 

households who reside inside the SFHA, and tested the difference in weighted household income 

between policyholders and non-policyholders. Our test results determined that the difference 

between incomes were statistically significant for 46 of the 50 states tested. For households 

residing in the SFHA there is a true difference in household income between policyholders and 

non-policyholders: policyholders have a higher income than non-policyholders Test results did 

61 
 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

not show a significant difference in income between policyholders and non-policyholders 

residing in the SFHA in Montana, Puerto Rico, Vermont, and Wyoming (Table A.4). 

Table A.4. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders within an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W pvalues 

Statistically 

Significant 

Alabama non-policyholder 

policyholder 

33,921 

14,959 

$32,342 

$64,051 

$31,710 7.53 < .001 yes 

Alaska non-policyholder 

policyholder 

4,349 

1,345 

$83,912 

$119,846 

$35,934 3.12 < .001 yes 

Arizona non-policyholder 

policyholder 

36,963 

17,661 

$39,216 

$80,105 

$40,889 10.32 < .001 yes 

Arkansas non-policyholder 

policyholder 

36,092 

9,993 

$32,039 

$46,640 

$14,601 2.72 0.01 yes 

California non-policyholder 

policyholder 

233,614 

95,937 

$46,491 

$82,542 

$36,051 16.53 < .001 yes 

Colorado non-policyholder 

policyholder 

23,366 

7,684 

$45,056 

$68,611 

$23,555 4.70 < .001 yes 

Connecticut non-policyholder 

policyholder 

29,204 

16,027 

$56,469 

$123,171 

$66,702 9.06 < .001 yes 

Delaware non-policyholder 

policyholder 

7,337 

6,270 

$55,632 

$79,371 

$23,739 2.36 0.02 yes 

District of 

Columbia 

non-policyholder 

policyholder 

3,561 

475 

$45,045 

$253,057 

$208,012 *__ *__ *__ 

Florida non-policyholder 

policyholder 

976,673 

617,219 

$43,462 

$76,112 

$32,650 39.44 < .001 yes 

Georgia non-policyholder 

policyholder 

49,829 

36,985 

$40,048 

$75,109 

$35,060 11.31 < .001 yes 

Hawaii non-policyholder 

policyholder 

25,605 

4,406 

$55,056 

$91,862 

$36,806 3.00 < .001 yes 

Idaho non-policyholder 

policyholder 

15,377 

2,472 

$47,499 

$85,089 

$37,591 2.32 0.02 yes 

Illinois non-policyholder 

policyholder 

54,561 

21,805 

$45,060 

$70,088 

$25,028 8.16 < .001 yes 

Indiana non-policyholder 

policyholder 

44,147 

15,960 

$41,031 

$58,033 

$17,002 3.60 < .001 yes 

Iowa non-policyholder 

policyholder 

17,452 

6,024 

$42,423 

$60,477 

$18,054 3.81 < .001 yes 

Kansas non-policyholder 21,074 $40,764 $23,307 5.28 < .001 yes 

62 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.4. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders within an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W pvalues 

Statistically 

Significant 

policyholder 5,651 $64,071 

Kentucky non-policyholder 

policyholder 

46,341 

14,133 

$30,044 

$63,087 

$33,043 9.46 < .001 yes 

Louisiana non-policyholder 

policyholder 

239,954 

222,195 

$32,769 

$72,714 

$39,945 28.83 < .001 yes 

Maine non-policyholder 

policyholder 

7,514 

2,318 

$56,046 

$76,195 

$20,148 2.28 0.02 yes 

Maryland non-policyholder 

policyholder 

16,080 

18,929 

$53,378 

$98,551 

$45,173 7.99 < .001 yes 

Massachusetts non-policyholder 

policyholder 

44,558 

18,899 

$53,314 

$85,539 

$32,225 6.39 < .001 yes 

Michigan non-policyholder 

policyholder 

46,720 

14,097 

$42,779 

$72,609 

$29,830 8.75 < .001 yes 

Minnesota non-policyholder 

policyholder 

17,540 

5,068 

$56,100 

$76,448 

$20,348 4.01 < .001 yes 

Mississippi non-policyholder 

policyholder 

42,945 

18,648 

$28,954 

$63,858 

$34,903 9.59 < .001 yes 

Missouri non-policyholder 

policyholder 

33,945 

11,566 

$34,643 

$50,060 

$15,417 4.81 < .001 yes 

Montana non-policyholder 

policyholder 

8,635 

2,034 

$40,325 

$57,669 

$17,344 1.45 0.15 no 

Nebraska non-policyholder 

policyholder 

17,408 

4,520 

$37,109 

$68,091 

$30,982 6.55 < .001 yes 

Nevada non-policyholder 

policyholder 

12,076 

6,757 

$46,057 

$75,268 

$29,210 3.75 < .001 yes 

New Hampshire non-policyholder 

policyholder 

9,027 

2,317 

$50,468 

$84,789 

$34,320 3.30 < .001 yes 

New Jersey non-policyholder 

policyholder 

107,170 

74,269 

$56,444 

$86,514 

$30,070 11.17 < .001 yes 

New Mexico non-policyholder 

policyholder 

35,365 

9,314 

$36,878 

$58,097 

$21,219 5.65 < .001 yes 

New York non-policyholder 

policyholder 

132,977 

61,993 

$48,126 

$102,050 

$53,924 18.00 < .001 yes 

North Carolina non-policyholder 

policyholder 

53,273 

39,704 

$34,404 

$73,051 

$38,648 13.72 < .001 yes 

North Dakota non-policyholder 6,595 $56,638 $45,397 4.56 < .001 yes 

63 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.4. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders within an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W pvalues 

Statistically 

Significant 

policyholder 2,268 $102,035 

Ohio non-policyholder 54,206 $38,007 $30,071 10.07 < .001 yes 

policyholder 21,416 $68,078 

Oklahoma non-policyholder 25,387 $38,786 $22,275 4.54 < .001 yes 

policyholder 7,249 $61,060 

Oregon non-policyholder 29,926 $39,492 $34,184 6.78 < .001 yes 

policyholder 13,206 $73,676 

Pennsylvania non-policyholder 70,025 $39,264 $31,855 13.62 < .001 yes 

policyholder 29,227 $71,119 

Puerto Rico non-policyholder 99,506 $19,848 $7,355 1.91 0.06 no 

policyholder 1,133 $27,203 

Rhode Island non-policyholder 7,002 $49,614 $34,819 2.81 0.01 yes 

policyholder 4,894 $84,433 

South Carolina non-policyholder 47,328 $43,051 $50,020 14.17 < .001 yes 

policyholder 63,849 $93,071 

South Dakota non-policyholder 11,844 $35,047 $15,491 4.02 < .001 yes 

policyholder 1,593 $50,538 

Tennessee non-policyholder 25,737 $34,215 $28,239 5.20 < .001 yes 

policyholder 11,944 $62,454 

Texas non-policyholder 295,351 $36,056 $46,128 26.90 < .001 yes 

policyholder 133,817 $82,184 

Utah non-policyholder 7,258 $53,253 $38,575 *__ *__ *__ 

policyholder 764 $91,829 

Vermont non-policyholder 5,635 $47,041 $6,353 1.13 0.26 no 

policyholder 1,777 $53,394 

Virginia non-policyholder 47,192 $41,734 $38,362 11.10 < .001 yes 

policyholder 40,219 $80,096 

Washington non-policyholder 34,259 $42,396 $21,249 6.01 < .001 yes 

policyholder 16,905 $63,645 

West Virginia non-policyholder 46,123 $36,056 $21,677 6.77 < .001 yes 

policyholder 8,879 $57,733 

Wisconsin non-policyholder 21,269 $45,330 $26,306 5.40 < .001 yes 

policyholder 6,700 $71,636 

Wyoming non-policyholder 3,896 $49,017 $9,432 0.34 0.74 no 

policyholder 1,168 $58,450 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data. 

64 
 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Note: Data weighted using ACS sample weights.
 

*__ Statistical test not performed due to small sample sizes in unweighted values.
 

Using the Wilcoxon Ranked Sum test at a 95 percent confidence level, we selected only those 

households who reside outside the SFHA, and tested the difference in household income between 

policyholders and non-policyholders. Our test results determined that the difference between 

incomes were statistically significant for 48 of the 50 states tested. For those households residing 

outside the SFHA there is a difference in household income between policyholders and nonpolicyholders: policyholders have a higher income than non-policyholders. Test results did not 

show a significant difference in income between policyholders and non-policyholders residing 

outside the SFHA in Delaware and Idaho (Table A.5). 

Table A.5. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W p-values Statistically 

Significant 

Alabama non-policyholder 

policyholder 

1,557,577 

15,557 

$45,557 

$76,592 

$31,035 8.58 < .001 yes 

Alaska non-policyholder 

policyholder 

198,590 

1,233 

$76,223 

$125,647 

$49,424 3.78 < .001 yes 

Arizona non-policyholder 

policyholder 

2,186,293 

13,623 

$52,183 

$69,130 

$16,947 4.59 < .001 yes 

Arkansas non-policyholder 

policyholder 

975,529 

4,191 

$43,311 

$72,821 

$29,510 4.23 < .001 yes 

California non-policyholder 

policyholder 

11,197,561 

170,856 

$65,086 

$96,455 

$31,369 22.5 

5 < .001 yes 

Colorado non-policyholder 

policyholder 

1,878,634 

13,211 

$64,742 

$105,914 

$41,172 10.6 

4 < .001 yes 

Connecticut non-policyholder 

policyholder 

1,154,593 

13,952 

$74,329 

$124,779 

$50,450 8.12 < .001 yes 

Delaware non-policyholder 

policyholder 

314,176 

4,903 

$61,708 

$76,666 

$14,958 1.83 0.07 no 

District of 

Columbia 

non-policyholder 

policyholder 

244,488 

1,489 

$75,110 

$113,995 

$38,885 4.30 < .001 yes 

Florida non-policyholder 

policyholder 

4,554,005 

467,386 

$47,571 

$81,058 

$33,487 43.6 

6 < .001 yes 

Georgia non-policyholder 

policyholder 

3,053,771 

35,266 

$52,076 

$82,125 

$30,049 10.7 

4 < .001 yes 

Hawaii non-policyholder 

policyholder 

349,520 

3,905 

$76,103 

$106,873 

$30,770 4.44 < .001 yes 

Idaho non-policyholder 508,765 $48,962 $21,740 1.81 0.07 no 

65 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.5. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W p-values Statistically 

Significant 

policyholder 2,284 $70,702 

Illinois non-policyholder 

policyholder 

4,351,949 

16,411 

$60,095 

$95,328 

$35,233 5.80 < .001 yes 

Indiana non-policyholder 

policyholder 

2,277,896 

11,004 

$51,075 

$68,456 

$17,381 7.00 < .001 yes 

Iowa non-policyholder 

policyholder 

1,069,268 

5,865 

$55,081 

$68,271 

$13,190 4.33 < .001 yes 

Kansas non-policyholder 

policyholder 

978,901 

5,344 

$55,065 

$68,100 

$13,035 2.88 < .001 yes 

Kentucky non-policyholder 

policyholder 

1,499,978 

6,173 

$46,072 

$65,082 

$19,010 4.18 < .001 yes 

Louisiana non-policyholder 

policyholder 

930,241 

169,069 

$42,065 

$72,273 

$30,208 22.7 

7 < .001 yes 

Maine non-policyholder 

policyholder 

497,645 

1,971 

$52,076 

$89,983 

$37,907 5.35 < .001 Yes 

Maryland non-policyholder 

policyholder 

1,933,119 

18,195 

$76,601 

$112,146 

$35,545 6.34 < .001 yes 

Massachusetts non-policyholder 

policyholder 

2,256,403 

20,391 

$72,100 

$106,480 

$34,380 6.21 < .001 yes 

Michigan non-policyholder 

policyholder 

3,330,191 

9,244 

$52,069 

$88,160 

$36,091 9.51 < .001 yes 

Minnesota non-policyholder 

policyholder 

1,963,613 

7,033 

$64,971 

$95,922 

$30,951 7.43 < .001 yes 

Mississippi non-policyholder 

policyholder 

890,346 

37,008 

$41,053 

$58,103 

$17,049 8.08 < .001 yes 

Missouri non-policyholder 

policyholder 

2,119,720 

6,359 

$51,199 

$73,173 

$21,974 5.69 < .001 yes 

Montana non-policyholder 

policyholder 

350,174 

3,285 

$50,061 

$67,469 

$17,408 3.45 < .001 yes 

Nebraska non-policyholder 

policyholder 

654,360 

2,788 

$55,547 

$86,860 

$31,313 2.25 0.02 yes 

Nevada non-policyholder 

policyholder 

933,714 

6,274 

$54,108 

$78,118 

$24,010 4.34 < .001 yes 

New 

Hampshire 

non-policyholder 

policyholder 

471,676 

2,458 

$71,101 

$94,817 

$23,716 2.99 < .001 yes 

New Jersey non-policyholder 2,665,030 $74,926 $41,244 < .001 yes 

66 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.5. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W p-values Statistically 

Significant 

10.9 

policyholder 33,637 $116,170 5 

New Mexico non-policyholder 645,419 $46,322 $45,946 8.41 < .001 yes 

policyholder 5,722 $92,268 

New York non-policyholder 

policyholder 

6,369,139 

89,122 

$61,431 

$108,182 

$46,752 23.7 

8 < .001 yes 

North Carolina non-policyholder 

policyholder 

3,286,309 

34,831 

$48,075 

$75,157 

$27,082 12.5 

3 < .001 yes 

North Dakota non-policyholder 240,763 $57,090 $37,366 6.28 < .001 yes 

policyholder 10,793 $94,456 

Ohio non-policyholder 

policyholder 

4,255,819 

17,253 

$52,031 

$85,100 

$33,069 10.6 

7 < .001 yes 

Oklahoma non-policyholder 1,253,216 $49,056 $27,253 6.51 < .001 yes 

policyholder 9,197 $76,309 

Oregon non-policyholder 1,377,267 $55,565 $18,412 4.09 < .001 yes 

policyholder 9,493 $73,977 

Pennsylvania non-policyholder 4,460,871 $56,536 $18,162 8.36 < .001 yes 

policyholder 25,707 $74,698 

Puerto Rico non-policyholder 949,549 $20,910 $50,536 *__ *__ *__ 

policyholder 205 $71,446 

Rhode Island non-policyholder 354,151 $60,996 $31,549 4.98 < .001 yes 

policyholder 6,084 $92,545 

South Carolina non-policyholder 

policyholder 

1,494,868 

45,183 

$46,244 

$79,124 

$32,880 16.4 

9 < .001 yes 

South Dakota non-policyholder 283,102 $54,687 $19,689 3.46 < .001 yes 

policyholder 1,941 $74,377 

Tennessee non-policyholder 2,226,501 $48,060 $34,401 8.32 < .001 yes 

policyholder 14,258 $82,461 

Texas non-policyholder 

policyholder 

7,544,757 

416,469 

$55,070 

$100,060 

$44,990 42.2 

5 < .001 yes 

Utah non-policyholder 840,791 $64,086 $29,395 3.05 < .001 yes 

policyholder 2,013 $93,481 

Vermont non-policyholder 231,329 $58,319 $29,905 4.66 < .001 yes 

policyholder 926 $88,224 

Virginia non-policyholder 

policyholder 

2,762,778 

48,612 

$67,077 

$108,123 

$41,046 16.4 

4 < .001 yes 

67 
 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.5. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders Outside an SFHA (2015), using 95% Confidence Level
 

State SFHA 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Income 

Difference 

W p-values Statistically 

Significant 

Washington 

West Virginia 

Wisconsin 

Wyoming 

non-policyholder 

policyholder 

non-policyholder 

policyholder 

non-policyholder 

policyholder 

non-policyholder 

policyholder 

2,270,236 

14,525 

627,117 

2,635 

2,121,501 

6,881 

199,152 

1,009 

$63,732 

$90,734 

$43,503 

$78,305 

$56,386 

$83,907 

$60,081 

$127,187 

$27,002 

$34,803 

$27,522 

$67,106 

5.31 

3.23 

6.39 

*__ 

< .001 

< .001 

< .001 

*__ 

yes 

yes 

yes 

*__ 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

Note: Data weighted using ACS sample weights.
 

*-- Statistical test not performed due to small sample sizes in unweighted values.
 

In addition, policyholders have higher median incomes than non-policyholders at the national 

level and for 50 out of 52 states tested. Test results did not show a significant difference in 

income between policyholders and non-policyholders in Vermont and Wyoming (Table A.6). 

Table A.6. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and 

Non-policyholders (2015), using 95% Confidence Level 

State NFIP 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Difference 

W pvalues 

Statistically 

Significant 

Alabama non-policyholder 

policyholder 

1,591,498 

30,516 

$45,066 

$68,264 

$23,198 9.33 <0.001 yes 

Alaska non-policyholder 

policyholder 

202,939 

2,578 

$76,361 

$121,388 

$45,027 6.28 <0.001 yes 

Arizona non-policyholder 

policyholder 

2,223,256 

31,284 

$52,069 

$75,240 

$23,171 9.32 <0.001 yes 

Arkansas non-policyholder 

policyholder 

1,011,621 

14,184 

$42,704 

$54,060 

$11,356 1.99 0.05 yes 

California non-policyholder 

policyholder 

11,431,175 

266,793 

$64,945 

$91,106 

$26,160 22.93 <0.001 yes 

Colorado non-policyholder 

policyholder 

1,902,000 

20,895 

$64,327 

$96,263 

$31,937 8.18 <0.001 yes 

Connecticut non-policyholder 

policyholder 

1,183,797 

29,979 

$73,855 

$123,171 

$49,316 10.77 <0.001 yes 

Delaware non-policyholder 

policyholder 

321,513 

11,173 

$61,546 

$77,449 

$15,904 3.82 <0.001 yes 

68 
 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.6. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders (2015), using 95% Confidence Level
 

State NFIP 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Difference 

W pvalues 

Statistically 

Significant 

District of 

Columbia 

non-policyholder 

policyholder 

248,049 

1,964 

$75,099 

$142,914 

$67,815 6.28 <0.001 yes 

Florida non-policyholder 

policyholder 

5,530,678 

1,084,605 

$46,829 

$78,353 

$31,524 58.46 <0.001 yes 

Georgia non-policyholder 

policyholder 

3,103,600 

72,251 

$52,061 

$79,761 

$27,700 13.95 <0.001 yes 

Hawaii non-policyholder 

policyholder 

375,125 

8,311 

$75,077 

$101,820 

$26,743 3.60 <0.001 yes 

Idaho non-policyholder 

policyholder 

524,142 

4,756 

$48,829 

$73,993 

$25,164 3.05 <0.001 yes 

Illinois non-policyholder 

policyholder 

4,406,510 

38,216 

$60,088 

$78,246 

$18,158 6.73 <0.001 yes 

Indiana non-policyholder 

policyholder 

2,322,043 

26,964 

$51,052 

$61,846 

$10,794 4.63 <0.001 yes 

Iowa non-policyholder 

policyholder 

1,086,720 

11,889 

$55,072 

$65,733 

$10,661 4.19 <0.001 yes 

Kansas 

non-policyholder 

policyholder 

999,975 

10,995 

$54,708 

$66,928 

$12,219 3.47 <0.001 yes 

Kentucky non-policyholder 

policyholder 

1,546,319 

20,306 

$45,515 

$63,219 

$17,704 6.49 <0.001 yes 

Louisiana non-policyholder 

policyholder 

1,170,195 

391,264 

$40,050 

$72,565 

$32,515 34.80 <0.001 yes 

Maine non-policyholder 

policyholder 

505,159 

4,289 

$52,081 

$86,173 

$34,092 5.45 <0.001 yes 

Maryland non-policyholder 

policyholder 

1,949,199 

37,124 

$76,120 

$104,647 

$28,527 7.90 <0.001 yes 

Massachusetts non-policyholder 

policyholder 

2,300,961 

39,290 

$71,922 

$98,212 

$26,290 6.77 <0.001 yes 

Michigan non-policyholder 

policyholder 

3,376,911 

23,341 

$52,060 

$78,761 

$26,701 10.94 <0.001 yes 

Minnesota non-policyholder 

policyholder 

1,981,153 

12,101 

$64,770 

$88,110 

$23,340 7.73 <0.001 yes 

Mississippi non-policyholder 

policyholder 

933,291 

55,656 

$40,224 

$60,088 

$19,864 10.75 <0.001 yes 

Missouri non-policyholder 

policyholder 

2,153,665 

17,925 

$50,956 

$57,460 

$6,504 2.83 <0.001 yes 

69 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.6. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders (2015), using 95% Confidence Level
 

State NFIP 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Difference 

W pvalues 

Statistically 

Significant 

Montana non-policyholder 

policyholder 

358,809 

5,319 

$50,054 

$60,951 

$10,897 3.20 <0.001 yes 

Nebraska non-policyholder 

policyholder 

671,768 

7,308 

$55,080 

$77,265 

$22,185 3.88 <0.001 yes 

Nevada non-policyholder 

policyholder 

945,790 

13,031 

$54,075 

$75,535 

$21,460 4.99 <0.001 yes 

New 

Hampshire 

non-policyholder 

policyholder 

480,703 

4,775 

$70,694 

$91,047 

$20,353 3.65 <0.001 yes 

New Jersey non-policyholder 

policyholder 

2,772,200 

107,906 

$74,045 

$95,005 

$20,960 12.31 <0.001 yes 

New Mexico non-policyholder 

policyholder 

680,784 

15,036 

$45,758 

$68,144 

$22,387 6.89 <0.001 yes 

New York non-policyholder 

policyholder 

6,502,116 

151,115 

$61,082 

$104,111 

$43,029 29.96 <0.001 yes 

North Carolina non-policyholder 

policyholder 

3,339,582 

74,535 

$48,056 

$75,118 

$27,062 15.50 <0.001 yes 

North Dakota non-policyholder 

policyholder 

247,358 

13,061 

$57,089 

$95,129 

$38,039 7.71 <0.001 yes 

Ohio non-policyholder 

policyholder 

4,310,025 

38,669 

$51,612 

$73,957 

$22,345 10.86 <0.001 yes 

Oklahoma non-policyholder 

policyholder 

1,278,603 

16,446 

$48,787 

$66,968 

$18,181 6.86 <0.001 yes 

Oregon non-policyholder 

policyholder 

1,407,193 

22,699 

$55,080 

$73,677 

$18,597 5.32 <0.001 yes 

Pennsylvania non-policyholder 

policyholder 

4,530,896 

54,934 

$56,075 

$72,242 

$16,167 10.67 <0.001 yes 

Puerto Rico non-policyholder 

policyholder 

1,049,055 

1,338 

$20,823 

$38,608 

$17,785 2.45 0.01 yes 

Rhode Island non-policyholder 

policyholder 

361,153 

10,978 

$60,487 

$90,837 

$30,350 5.54 <0.001 yes 

South Carolina non-policyholder 

policyholder 

1,542,196 

109,032 

$46,073 

$86,749 

$40,676 23.79 <0.001 yes 

South Dakota non-policyholder 

policyholder 

294,946 

3,534 

$53,176 

$65,349 

$12,173 2.97 <0.001 yes 

Tennessee non-policyholder 

policyholder 

2,252,238 

26,202 

$48,030 

$69,526 

$21,496 8.14 <0.001 yes 

70 
 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table A.6. Wilcoxon Rank Sum Tests Results, Difference in Income between Policyholders and
 

Non-policyholders (2015), using 95% Confidence Level
 

State NFIP 

Number of 

households 

(weighted) 

Household 

Median 

Income 

(weighted) 

Household 

Median 

Difference 

W pvalues 

Statistically 

Significant 

Texas non-policyholder 

policyholder 

7,840,108 

550,286 

$54,085 

$94,049 

$39,964 45.75 <0.001 yes 

Utah non-policyholder 

policyholder 

848,049 

2,777 

$64,080 

$97,063 

$32,983 2.36 0.02 yes 

Vermont non-policyholder 

policyholder 

236,964 

2,703 

$58,072 

$74,187 

$16,115 1.65 0.10 no 

Virginia non-policyholder 

policyholder 

2,809,970 

88,831 

$66,379 

$92,939 

$26,559 14.29 <0.001 yes 

Washington non-policyholder 

policyholder 

2,304,495 

31,430 

$63,100 

$74,089 

$10,989 3.92 <0.001 yes 

West Virginia non-policyholder 

policyholder 

673,240 

11,514 

$42,903 

$62,774 

$19,871 5.33 <0.001 yes 

Wisconsin non-policyholder 

policyholder 

2,142,770 

13,581 

$56,246 

$78,585 

$22,339 6.79 <0.001 yes 

Wyoming non-policyholder 

policyholder 

203,048 

2,177 

$60,079 

$79,942 

$19,863 1.30 0.19 no 

SOURCE: FEMA analysis of NFIP policyholder data and Census ACS data.
 

Note: Data weighted using ACS sample weights.
 

*-- Statistical test not performed due to small sample sizes in unweighted values.
 

71 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Appendix B: Additional Information on Flood Insurance 

Cost and Household Income 

This appendix provides additional detail on several of the findings presented in Chapter 2. 

Number of NFIP Policyholders and Cost of NFIP Policies 

Table B.1 shows the number of NFIP residential policies by state. This tabulation includes all 4.8 

million policies in effect at some point in 2015 before we merged ACS income data with NFIP 

data. 

Table B.1. Number of NFIP Policyholders by State, including residential, non-residential 

business, and other non-residential (2015) 

State Number of 

Policyholders State Number of Policyholders 

Florida 1,461,218 West Virginia 21,094 

Texas 657,052 Hawaii 19,429 

Louisiana 497,060 Oklahoma 19,178 

California 307,436 Wisconsin 17,171 

New Jersey 196,657 Iowa 16,917 

New York 189,818 New Mexico 16,705 

South Carolina 170,357 Rhode Island 15,232 

North Carolina 131,753 North Dakota 14,769 

Virginia 109,551 Nevada 14,508 

Georgia 96,850 Kansas 13,550 

Mississippi 76,308 Nebraska 13,198 

Pennsylvania 72,680 Minnesota 13,189 

Massachusetts 58,358 Puerto Rico 10,243 

Maryland 53,061 Maine 10,074 

Alabama 47,175 New Hampshire 8,535 

Illinois 46,532 Idaho 6,756 

Washington 45,129 Montana 6,671 

Ohio 43,011 South Dakota 5,731 

Connecticut 39,805 Vermont 4,806 

Arizona 39,614 Utah 4,203 

Tennessee 34,184 Alaska 3,206 

Oregon 33,149 Wyoming 2,549 

Indiana 31,824 District of Columbia 1,910 

Missouri 27,342 

Michigan 26,826 Total 4,848,829 

Kentucky 26,445 

Colorado 24,701 

Delaware 22,900 

Arkansas 22,409 

72 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Table B.2 reports the average premium, fees, and total policy cost for single-family homes for 

policies in effect in 2015. Single-family homes account for 4.06 million of the 4.8 million 

policies in Table B.1. We added the HFIAA to policies that did not report a HFIAA surcharge. 

Policyholder costs average $800 overall, and are substantially higher in the SFHA than outside 

the SFHA. Fees account for about 17 percent of policyholder costs, with little variation inside 

and outside the SFHA. 

Table B.2. Average Premiums and Fees for Single Family Homes 

(for policies in effect in 2015) 

Inside SFHA Outside SFHA Total 

Premiums $913 $405 $663 

Fees $185 $88 $137 

Policyholder costs $1,098 $492 $800 

Number of policies 2,062,274 2,000,729 4,063,003 

SOURCE: FEMA analysis of NFIP policyholder data.
 

NOTE: Includes premiums and fees.
 

Policyholder and Non-policyholder Income 

Figure B.1 shows the difference in median income between households inside and outside the 

SFHA by state. 

 The red boxes represent states where median household income in the SFHA is higher 

and statistically different from income outside the SFHA. 

 The blue boxes represent states where median household income in the SFHA is lower 

and statistically different from income outside the SFHA. 

 The white boxes represent states where there is not a statistically significant difference 

between median incomes in the two regions. 

Overall, households (policyholders and non-policyholders) inside the SFHA have lower median 

income than households outside the SFHA; however, there is considerable variation by state. 

For some states, income is higher in the SFHA than outside the SFHA. However, in most states, 

income is lower in the SFHA than outside the SFHA. Figure B.1 and subsequent figures use the 

weighted medians from the merged NFIP and ACS data. 

73 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure B.1. Difference in Median Incomes of ACS Respondents Living In and Out of the SFHA 

(2014) 

SOURCE: FEMA analysis of U.S. Census Bureau ACS data.
 

NOTE: Data weighted using ACS sample weights.
 

In Figure B.2 below, we present the same differences shown in Figure B.1 on a map. Red 

represents higher median incomes in the SFHA, blue represents lower median income in the 

SFHA, and white represents non-statistically significant differences. 

74 
 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure B.2. Map of Difference in Median Incomes of ACS Respondents Living In or Out of the 

SFHA (2015) 

Source: FEMA analysis of NFIP policyholder and Census ACS data 

Figures B.3 and B.4 show the difference in policyholder and non-policyholder income by state 

inside and outside the SFHA, respectively. The dark blue dots represent median policyholder 

income, purple dots represent non-policyholder median income, and black dots represent median 

income of all households in the states regardless of whether they are policyholders and whether 

they live inside an SFHA). Colorless dots represent states where there is no statistically 

significant difference between median incomes.49 Policyholder income is higher than nonpolicyholder income in all states, but the magnitude of the difference varies. 

49We did not test several states statistical significance for several states because of small sample sizes. 

75 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure B.3. Household Incomes for ACS Respondents Living inside the SFHA 

(2015, includes both policyholders and non-policyholders) 

SOURCE: FEMA analysis of NFIP Policyholder and Census ACS data. 

NOTE: Data weighted using ACS sample weights. 

76 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Figure B.4. Household Income for ACS Respondents Living outside the SFHA 

(2015, includes both policyholders and non-policyholders) 

SOURCE: FEMA analysis of NFIP Policyholder and ACS Census data. 

NOTE: Data weighted using ACS sample weights. 

77 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Appendix C: Methods Used to Estimate Program Costs 

In this appendix, we discuss the methods we used to develop the costs for the program design 

options discussed in Chapter 4. 

For each design option, we estimate the number of participants and annual program cost for 

different sets of program scenarios. FEMA estimated the cost and number of participants for 

current policyholders. We did not estimate the number of non-policyholders who might become 

policyholders and eligible for the program as a result of an affordability program. FEMA 

calculated the number of participants in each scenario by summing the household weights for 

those eligible to participate in the program. FEMA calculated the cost of each design option by 

multiplying the household weight variable by the benefit (amount of premium reduction) for 

each participant and then summed the weighted values. 

Below we provide the formulas used to calculate benefit for each of the program designs. 

Cost of Income-Based Premium Sharing 

Cost When Benefits Vary Continuously with Household Income 

This program is designed around the notion that there is cost sharing between the household and 

the Federal Government (the benefit program). This implies that we need to know the 

unsubsidized premium, Pthat each household would face given the location of their primary 

residence to begin to calculate the cost of the program. There are three parameters in Design 1: 

the benefit that low-income households receive expressed as a fraction 



, the income cut-off that 

defines low-income households 

I

, and the income cut-off for eligibility to the program 

I . 

Incomes over 

I

would receive no benefit. For each household eligible for the program, i.e., 

those with incomes below the income eligibility cut-off, we calculate the benefit that the 

household would receive. The formula for calculating the benefit that the household would 

receive is: 

P if Income I ,

Benefit Income I P if I Income I

I I





 



  

  

 

To calculate the total cost of the program, we simply add the benefits that each household 

receives. Additionally, since not all eligible households will either purchase flood insurance or 

participate in the program, we would assume a take-up rate that would be a function of income. 

As increases, every household receives a larger benefit and makes the program more costly. 

As 



I

increases, more households are eligible for the full benefit, making the program more 

expensive. As 

I

increases, more households are eligible for the program and the cost of the 

program increases but at a smaller rate than by increasing 

I . 

Cost When Benefits Based on Income Bins 

With a binned approach, we have many more parameters to estimate. For each bin, we would 

have upper- and lower-income thresholds but the upper-income threshold for one bin is the 

78 
 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

lower-income threshold for the next. Suppose that there are three income bins that are eligible for 

benefits with income cutoffs: and that receive proportions and from the 

program. The benefit that a household would receive is: 

To estimate the total cost of the program, we add the benefits paid for each income bin and add 

1 2 I I, , 3

I

1 2  , ,  3

1 1

2 1 2

3 2 3

,

,

,

P if Income I

Benefit P if I Income I

P if I Income I







 



   



  

up the total cost of each income bin.
 

The complication that arises when estimating the cost of this design option, whether continuous
 

or binned, is that the income cutoffs are place-specific, because they are based on AMI. Thus, 

AMIs for all potential policyholders would need to be calculated.
 

Cost of Design 2: Premium Burden-Based Benefit 

Cost When Benefits Vary Continuously with Household Income 

This design option is very similar to the previous option, but instead of calculating the benefit as 

a proportion of the premium, Phouseholds must pay a portion of their income toward flood 

insurance. The benefit would never exceed the price of a policy. For this design, we assume that 

there are three income cutoffs, 1 2 I I, ,and 

3

I

, and three corresponding income burdens 

1 2  , ,

and 

 3

. The benefit that the household receives is: 

1 1

2 1 2

3 2 3

P Income if Income I

Benefit P Income ifI Income I

P Income if I Income I







   

    



   

To calculate the total cost of the program, we add the benefits received by each eligible 

household. 

Cost When Benefits Based on Income Bins 

To transfer Option 2 to a binned approach would require an additional simplification. In 

particular, we would assume a particular income and pay a fixed proportion amount of the 

premium. This design would be: 

1

2 2 1 2

3 3 2 3

P if Income I

Benefit P I ifI Income I

P I if I Income I





 



    



   

Cost of Design 3: Housing Burden-Based Benefit 

To calculate the benefit in this design we must know the household’s PITI with flood insurance 

PITI

w

and without flood insurance, PITI

wo

and the flood insurance premium, 

P . There are only 

two parameters to this design: the income cutoff for eligibility, Iand the ratio of PITI to 

79 
 

 

 

An Affordability Framework for the National Flood Insurance Program April 17, 2018 

household income above which a household is housing burdened (). We determined the PITI 

benchmark for each household, 

PITI

, by multiplying  (e.g., 0.4) times household income. 

If 

PITI

w

PITI

is less than 

PITI

, the household is not eligible for the program. If 

PITI

wo

is greater 

than , then the household receives a benefit equal to the full amount of the premium. In the 

intermediate case when the PITI without flood insurance is less than 

PITI

and PITI with flood 

insurance is greater than 

PITI

the benefit is: , 

Benefit = 

PITI

w

- PITI

We can adjust the cost of the program by changing 

I

and . 

Cost Design 4: Mitigation Grants and Loans Add-On 

It is very difficult to estimate the cost of a mitigation grant and loan program as the number of 

eligible properties is difficult to estimate without identifying the properties and computing the 

cost of mitigation itself. The Small Business Administration (SBA) reported during the NAS 

workshops conducted for this study that a very small percentage of eligible households 

participated in their mitigation loan program. If a flood insurance mitigation grant or loan 

program had similar utilization rate, the potential costs of the program could be modest. 

80 
An Affordability Framework for the National Flood Insurance Program April 17, 2018 

Appendix D: The Person Identification Validation System 

(PVS): Applying the Center for Administrative Records 

Research and Applications’ (CARRA) Record Linkage 

Software 

81 
 

 

 

CARRA Working Paper Series
 

Working Paper #2014-01
 

The Person Identification Validation System (PVS):
 

Applying the Center for Administrative Records Research and Applications’ (CARRA)
 

Record Linkage Software 


Deborah Wagner
 

U.S. Census Bureau 

Mary Layne 

U.S. Census Bureau 

Center for Administrative Records Research and Applications
 

U.S. Census Bureau
 

Washington, D.C. 2023
 

Report Issued: July 1, 2014 

Disclaimer: This report is released to inform interested parties of research and to 

encourage discussion. The views expressed are those of the authors and not necessarily 

those of the U.S.Census Bureau. 

82
 

 

 

 

 

 

 

The Person Identification Validation System (PVS): 

Applying the Center for Administrative Records Research and Applications’ (CARRA)
 

Record Linkage Software 


July 1, 2014
 

Deborah Wagner
 

U.S. Census Bureau 

Mary Layne 

U.S. Census Bureau 

Abstract 

The Census Bureau’s Person Identification Validation System (PVS) assigns unique 

person identifiers to federal, commercial, census, and survey data to facilitate linkages 

across and within files. PVS uses probabilistic matching to assign a unique Census 

Bureau identifier for each person. The PVS matches incoming files to reference files 

created with data from the Social Security Administration (SSA) Numerical Identification 

file, and SSA data with addresses obtained from federal files. This paper describes the 

PVS methodology from editing input data to creating the final file. 

83
 

 

 

 

 

 

TABLE OF CONTENTS
 

TABLE OF CONTENTS .......................................................................................................... 84
 

I. INTRODUCTION ............................................................................................................. 85
 

II.	 RECORD LINKAGE BACKGROUND............................................................................. 87
 

Estimating m and u Probabilities................................................................................................. 88
 

III. PVS METHODOLOGY..................................................................................................... 88
 

3.1 Multi-Match Software......................................................................................................... 89
 

3.2 Reference Files .................................................................................................................... 89
 

3.3 Preparing Incoming Files for PVS.................................................................................... 90
 

3.3.1 Incoming File Edits .................................................................................................... 90
 

3.3.2 Assign Geographical Codes to Address ............................................................... 92
 

3.3.3 Parameter Files ......................................................................................................... 93
 

3.3.4 Blocking Strategy..................................................................................................... 93
 

3.3.5 Summary................................................................................................................... 94
 

3.4 PVS Search Modules ........................................................................................................ 95
 

3.4.1 Verification Module ................................................................................................ 95
 

3.4.2 GeoSearch Module................................................................................................... 95
 

3.4.3 NameSearch Module ............................................................................................... 96
 

3.4.4 DOBSearch Module ................................................................................................. 96
 

3.4.5 HHCompSearch Module......................................................................................... 97
 

3.5 Master File Creation....................................................................................................... 97
 

IV. PVS RESULTS................................................................................................................. 98
 

V. CONTINUOUS ENHANCEMENTS..............................................................................101
 

VI. SUMMARY......................................................................................................................102
 

REFERENCES.........................................................................................................................103
 

84
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I. INTRODUCTION 

The Census Bureau performs research with administrative records1 files to 

investigate methods to improve the Census Bureau’s statistical processes. Further, many 

projects at the Census involve matching persons across surveys and Federal data to 

enhance the understanding of participation in various Federal programs. Fundamental 

to this work is a method to ensure the same person is linked across multiple 

administrative files. The Census Bureau’s Person Identification Validation System (PVS) 

is used to ascertain unique person and address identifiers. 

The PVS uses probabilistic linking (Fellegi and Sunter, 1989) to match person data to 

a reference file. The reference files are derived from the Social Security Administration 

(SSA) Numerical Identification file (SSA Numident). The Numident contains all 

transactions recorded against one Social Security Number (SSN) and is reformatted to 

create the Census Numident. The Census Numident reference file contains one record 

for each SSN, keeping all variants of date of birth (DOB) and name data in separate files. 

The Census Numident is enhanced with address information from administrative 

records to create another reference file, the GeoBase. 

The matched person record is assigned a unique person identifier called the 

protected identification key (PIK) and it is an anonymous identifier as unique as a SSN. 

Once assigned, the PIK serves as a person linkage key across all files that have been 

processed using PVS. The PIK also serves as a person unduplication key within files. 

The Census Bureau developed the PVS in 1999 in collaboration with the SSA. The 

PVS was tested using the 1997 Current Population Survey (CPS) survey previously 

verified using the SSA’s SSN validation process, the Enumeration Verification System 

(EVS). An independent evaluation led by the Census Bureau’s Demographic Surveys 

Division (DSD) compared the results of the PVS and EVS and showed the PVS achieved 

match rates more than two percentage points higher than achieved by SSA’s EVS. The 

use of address data in the PVS system proved valuable in achieving this higher SSN 

assignment rate. As part of our Memorandum of Understanding with SSA, the Census 

Bureau must validate SSNs using PVS any time data are linked to any SSA administrative 

data. The SSA has authorized the use of the PVS at the Census Bureau. 

1 As used here, “administrative records” are files from the IRS, Department of Housing and Urban 

Developments Tenant Rental Assistance Certification System and Public and Indian Housing 

Information Center (HUD-TRACS and HUD-PIC), Selective Service System (SSS), Indian Health 

Service (IHS), Medicare Enrollment (MEDB), and commercial data from various sources. 

85
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The PVS was also used within the Statistical Administrative Records System (StARS) 

(Farber and Leggieri, 2002) to un-duplicate person records from Federal administrative 

records data. The StARS was produced annually from 1999 through 2010, each year 

processing approximately 900 million person records through the PVS system. PVS has 

been used with the Census Bureau’s demographic surveys and censuses since 2001. 

The PVS is the cornerstone of the Census Match Study (O’Hara and Marshall, 2011). 

Following the 2010 Decennial Census, the Census Match Study was undertaken to 

compare the coverage of administrative records and commercial data to the 2010 

Decennial Census enumeration. In addition to data from Federal administrative records, 

commercial sources were evaluated. Nine sources of commercial data were selected to 

provide additional addresses and information for people not found in administrative 

records as of the Census date of 4/1/2010. These commercial data sources were 

thought to contain more timely information on address data as of census day to 

supplement addresses not available on the Federal files. 

To meet the challenge of employing the PVS on commercial data sources and new 

Federal files, The Center for Administrative Records Research & Applications (CARRA) 

reviewed its current PVS capability. Independent contractors (NORC, 2011a) evaluated 

the PVS and recommended further enhancements to improve the already sound 

methodology of PVS. 

One of the key enhancements increased the coverage of the reference files by 

including records for persons with Individual Taxpayer Identification Numbers assigned 

by the Internal Revenue Service (ITINs) to the SSN-based Numident data. The PVS is an 

important tool at the Census Bureau as it continues to pursue research using the 2010 

Decennial data and plan for administrative records use in the 2020 Decennial Census. 

Record linkage requires human input throughout the process. Files need to be 

properly edited before they can be linked successfully. Parameters have to be set and 

links examined. In the subsequent sections, we describe the PVS. Section II provides an 

overview of record linkage and Section III details the methodology for the current PVS 

system and its uses at the Census Bureau. Section IV presents PVS results for Federal 

and commercial files. Section V discusses advantages and future improvements of the 

PVS. Finally, Section VI summarizes the salient points of the paper. 

86
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

II. RECORD LINKAGE BACKGROUND

Record linkage is the process of bringing together two or more records relating to 

the same entity. In 1946, H. L. Dunn of the United States National Bureau of Statistics 

introduced the term in this way: "Each person in the world creates a Book of Life. This 

Book starts with birth and ends with death. Record linkage is the name of the process of 

assembling the pages of this Book into a volume" (Dunn, 1946). In 1959, computerized 

record linkage was first undertaken by the Canadian geneticist Howard Newcombe and 

his associates. 

In 1969, Ivan Fellegi and Alan Sunter provided a mathematical framework to provide 

a viable theorem for linking two data files on common characteristics. This section 

briefly describes the general theory of record linkage. The paper by Felligi and Sunter 

(1969) provides the detailed theory. 

Felligi and Sunter describe a comparison space, A x B, consisting of all comparisons 

of records from two files a and b. There are three outcomes for the comparison space A 

x B: links, possible links, and non-links. In order to classify record pairs, comparisons 

are made between the same fields in each of the files. 

Denote the set of all comparison vectors, Γ, in A x B by: 

Γ[A x B] = {τ11[(α(a), β(B))], {τ2[(α(a), β(b))], ⋯ ,{τK[(α(a), β(b))]}

Two conditional probabilities are computed for each comparison pair. 

m, is the probability of agreement for a given comparison, when the record is in 

truth a match. Because all matching variables are subject to data coding error (for 

example, typographical or scanning errors), this m probability is less then 1.0 . 

u, is the probability of the comparison agreeing purely by chance for two records 

not belonging to the same individual. 

The ratio of these two conditional probabilities, R, is an odds ratio defined as: 

P(agree|m) m(τ) R = = P(agree|u) u(τ) 

Probabilistic record linkage assigns a value of R, to a pair of records.

2 The analyst 

provides a lower and upper threshold for a match. The optimum linkage is the one 

2 In practice, the comparison space is far more complicated because matching occurs on multiple 

fields, e.g., first name, middle name, last name, street address, street name, date of birth, etc. 

87
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

where records linked have a higher odds ratio than the upper threshold. All unlinked 

records have a odds ratio lower than the lower threshold. These two thresholds are set 

based on tolerance levels for the two types of error, linking unmatched records and 

failing to link matched ones. 

If R ≥ Upper, then the pair r, is a link. If Lower < R < Upper, the pair r is a potential 

match and assigned for analyst review. If R ≤ Lower, the pair r is a non-match. The cutoff thresholds for Lower and Upper are determined before the linking is done. It is 

important to review records falling into each category. 

Individual agreement weights, wτ for the i

th fields of the rth pair of records can be 

used as a substitute for the odds ratio, R: 

= log P(τ ∈Γ |m) wτ P(τ ∈Γ |u) 

The analyst designates weight values for upper and lower cutoffs. Record pairs where 

weights are above upper cutoff are links, weights below the lower cutoff are non-links, 

and those weights between cutoffs are in the clerical review region. 

Estimating m and u Probabilities 

There are several methods for automatically or semi- automatically estimating the m 

and u probabilities (Winkler, 2002, Winkler and Yancey, 2006). Often, value specific or 

frequency-based estimates are employed. Another approach is using the EM algorithm, 

which involves finding the maximum likelihood estimate of parameters. The likelihood 

function is simplified by assuming the existence of, and values for, missing or hidden 

parameters (in this case, m and u) (Bilmes, 1998). 

In practice, a single threshold value is often used (Winglee, 2005) and for PVS 

production purposes, CARRA sets a single threshold. In this case, the analyst decides 

links made below a threshold value are not valid links. Upper and lower bounds can also 

be set in PVS, and the system can provide links for analyst review. 

III. PVS METHODOLOGY 

The PVS software serves two primary functions: standard data editing and 

probabilistic matching. The PVS provides a documented, practical solution for 

processing many data files including census surveys (Current Population Study, 

American Community Survey), administrative records, and commercial files. The PVS 

probabilistically matches an incoming file to reference files in order to assign an 

anonymous PIK. 

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Optimized parameters, which provide information relevant to a probabilistic search,

3 

are preset by analysts for each file type based on years of usage, research, and testing. 

The staff in CARRA have expertise in the parameter setting process from their research 

and bring this knowledge to production. When a new file arrives, different from all 

previous files, CARRA staff optimize the parameters for probabilistic linking. Record 

linkage is both an art and a science. It is a balancing act between link quality, processing 

speed, and setting optimal parameters. 

3.1 Multi-Match Software 

The PVS employs its probabilistic record linkage software, Multi-Match (Wagner 

2012), as an integral part of the PVS. CARRA’s Multi-Match is a generalized probabilistic 

matching routine at the core of all of CARRA’s matching applications, and it is used 

heavily in the PVS. The Multi-Match is programmed as a SAS macro and is used by 

various record linkage applications. A user-defined parameter file provides information 

to Multi-Match, enabling it to perform the following functions 

•	 Block records according to parameter file specifications 

•	 Process records through passes,

4 as defined by the parameter file 

•	 Perform comparisons between records in the incoming file and those in the 

reference file 

•	 Create linked output. 

Multi-Match can link any two files on any set of characteristics and can be used outside 

of the PVS construct for other matching applications. 

Multi-Match, while an important part of the PVS, is not the only element in the PVS. 

The PVS performs many additional functions: data editing to prepare fields for 

matching, assigning Census geographical codes to incoming files, and data 

housekeeping functions. 

3.2 Reference Files 

Matching in the PVS requires a reference file to match against. Reference files are 

based on SSA’s Numident and contain SSN, a CARRA assigned PIK associated with the 

SSN, date of birth, name, gender and any addresses where the person may have resided. 

3 Parameter files are discussed in-depth in Section 3.3.3.
 

4 Each pass through the data defines differing matching strategies. See Section 3.3.3 for more
 

details.
 

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The SSA Numident file contains all transactions ever recorded against any single 

SSN. The Census Bureau builds a Census Numident on a regular basis from personal 

information derived from the SSA Numident file. All transactions related to a given SSN 

are resolved to produce a Census Numident file containing one data record for each 

SSN. All variants of name information for each SSN are retained in the Alternate Name 

Numident file, while all variants of date of birth data are retained in the Alternate DOB 

Numident. In addition to the Census Numident, PVS creates three other sets of reference 

files containing Numident data: the GeoBase Reference File, the Name Reference File, 

and the DOB Reference file. 

The GeoBase Reference File appends addresses from administrative records attached 

to Numident data, including all possible combinations of alternate names and dates of 

birth for SSN. Addresses from administrative records are edited and processed through 

commercial software product to clean and standardize address data. ITIN data is also 

incorporated into the Geobase. 

The Name and DOB Reference files are reformatted versions of the Census Numident 

and includes all possible combinations of alternate names and dates of birth, as well as 

ITIN data. All of the reference files contain SSN/ITIN and the corresponding PIK. When 

an input record is linked to a reference file, the corresponding PIK is assigned. Table 1 

presents the number of observations in each of the reference files. 

Table 1. Number of Observations in PVS Reference Files 

Reference File Observations 

Census Numident 

GeoBase 

Name and Date of Birth 

780 million 

1.2+ billion 

800 million 

3.3	 Preparing Incoming Files for PVS 

The first step of the PVS process is to edit data fields to make them homogenous for 

comparisons between incoming and reference files. There are several standard edits, 

which insure maximum success during linkage. 

3.3.1 Incoming File Edits 

The first edits are parsing and standardizing - parsing separates fields into 

component parts, while standardizing guarantees key data elements are consistent (e.g., 

STREET, STR are both converted to ST). Name and address fields are parsed and 

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standardized as they are key linkage comparators. Figure 1 provides an example of how 

name and address are parsed into separate fields and then standardized. 

During record linkage, a matching scheme might require that the first two letters of 

the first name must agree, the first four letters of the last name must agree, and the 

first two letters of the middle name agree, with similar rules for the address 

components. In Figures 1 and 2 the records are determined to be non-matches even 

though at first glance they may appear to be matches. This example demonstrates the 

importance of data parsing and standardization. 

Figure 1. Data Parsing and Standardization In File Editing 

Record # Name Address 

1 

2 

Mr. Bob G. Smith, Jr. 

Robert George Smith 

2345 S. Main Street 

2345 Main St. 

Figure 2. Parsed and Standardized Through File Editing 

Record # Name Address 

Prefix First Middle Last Suffix House # PreDirectional 

Street 

Name 

Type 

1 Mr. Robert G Smith Junior 12345 South Main ST 

2 Robert George Smith 12345 Main ST 

The data parsing and standardizing phase of PVS is extremely important for the 

matching algorithms to function properly. The PVS system incorporates a name 

standardizer (McGaughey, 1994), which is a C language subroutine called as a function 

within SAS. It performs name parsing and includes a nickname lookup table and outputs 

name variants (standardized variations of first and last names). For example, Bill 

becomes William, Chuck and Charlie becomes Charles, etc. The PVS keeps both the 

original name (Bill) and the converted name (William) for matching. PVS also has a fake 

name table to blank names such as “Queen of the House” or “Baby Girl.” The name data 

are parsed, checked for nicknames, and standardized. 

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The PVS editing process also incorporates an address parser and standardizer, 

written in the C language and called as a function within SAS (U.S. Census Bureau 

Geography Division, 1995). It performs parsing of address strings into individual output 

fields (see Figure 2), and standardizes the spelling of key components of the address 

such as street type. The PVS also incorporates use of a commercial product to update 

zip codes, and correct misspellings of address elements. 

3.3.2 Assign Geographical Codes to Address 

The PVS provides an additional address enhancement by matching records in the 

incoming file to Census Bureau’s Master Address File (MAF) in order to assign a unique 

address identifier, the MAF Identifier (MAFID), and other Census geographical codes 

(e.g., Census tract and block). The MAFID is used in the PVS for search purposes and as a 

linkage key for administrative files. Then, addresses are matched to the Census Bureau’s 

Topologically Integrated Geographic Encoding and Referencing Database (TIGER) to 

obtain Census geographical codes. 

CARRA receives bi-annual deliveries of an extract of the Census Bureau's MAF. Prior 

to using the MAF in any search, the MAF records are processed through the same 

commercial product as used in file editing to update zip codes and correct any 

misspellings of address elements. The MAFMatch function in PVS matches input 

addresses to the MAF extract using the Multi-Match engine and attaches the MAFID and 

Census geographical codes (county, tract, and block). This process contains a series of 

blocking strategies: 

1.	 Matching addresses using the full address, including the within structure unit 

number 

2.	 Using rural route addresses 

3.	 Using basic street address (BSA) without the within-structure unit number. 

The full address pass normally blocks on house number and zip code, matching on 

house number, street name, street prefix and suffix type, directional, and within 

structure unit ID. The rural route address pass normally blocks on the zip code and box 

number, matching on the rural route ID. The BSA-level pass is similar to the full 

address pass, but ignores the within structure unit ID. Only geographical codes are 

retained from BSA level matches. 

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Next, addresses are matched to TIGER (Census Bureau, 2010), which is comprised of 

shapefiles5

, and includes information for the fifty states, the District of Columbia, 

Puerto Rico, and the Island areas (American Samoa, the Commonwealth of the Northern 

Mariana Islands, Guam, and the United States Virgin Islands). TIGER Census 

geographical codes are added to the address record. Matching to the TIGER is done 

through one five digit zip code blocking pass. 

3.3.3 Parameter Files 

PVS uses the same Multi-Match engine for each probabilistic search type. For each 

search module the analyst defines a parameter file, which is passed to Multi-Match. The 

parameter file includes threshold value(s) for the number of passes, blocking keys, and 

within each pass, the match variables, match comparison type, and matching weights. 

The pass number determines how many times a match will be attempted, with various 

configurations and rules for the matching variables. In general, each successive pass is 

less restrictive than the previous one. 

Records must first match exactly on the blocking keys before any comparisons 

between the match variables are attempted. Each match variable is given an m and u 

probability, which is translated by MultiMatch as agreement and disagreement weights. 

The sum of all match variable comparison weights for a record pair is the composite 

weight. All record pairs with a composite weight greater than or equal to the threshold 

set in the parameter file are linked, and the records from the incoming file for these 

linked cases are excluded from all remaining passes. All Numident records are always 

available for linking in every pass. Any record missing data for any of the blocking fields 

for a pass skips that pass and moves to the next pass. 

Because the PIK is intended to link the same person between files, the cutoff 

thresholds are set conservatively (i.e., higher than might normally be set in some record 

linkage applications). 

3.3.4 Blocking Strategy 

Potentially, each record in the incoming data can be compared against all records in 

the reference file. The number of comparisons grows quadratically with the number of 

records for matching (Baxter, 2003). Considering the size of incoming data processed 

for Census Bureau purposes (incoming files can have over 500 million records) this is 

computationally untenable. Therefore PVS incorporates blocking strategies, which are 

methods of reducing the search space. Similar records are grouped together using 

5 A popular geospatial vector data format for geographic information systems software. 

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information from record attributes to create a blocking key, which may be comprised of 

more than one data attribute. Analysts have to be thoughtful in the selection of blocking 

keys, because of the error characteristics of the attributes used. Fields prone to a high 

probability of error should not be used. The use of multiple passes can mitigate this 

concern if independent blocking fields are incorporated for each pass. 

In the PVS, the blocking key for the first pass is highly restrictive and has a low 

probability of reporting error. (An example is an exact address match.) Subsequent 

blocking schemes can be less restrictive, but may produce weaker links. A feature of the 

PVS is its analysis program, which is run after any search program. This program 

provides a listing of links, by pass number, with the score and listing of the records 

matched from each file. This allows the analyst to examine links in a very compact and 

elucidating form. For example, if there are three passes, the analyst can review matches 

in the third (less restrictive) pass with the lowest score to determine if the parameter 

estimates are yielding sensible links. 

The Multi-Match engine, when utilized for the PVS, is a one-to many matching 

system. The reference file is searched to find the best match for the input record. All 

reference file records are available for matching during each pass, but matched input 

records do not proceed to the next pass. 6 

3.3.5 Summary 

The time required to determine the appropriate data cleaning edits should not be 

under estimated, as it can take days or even weeks. In 2011 CARRA received over two 

billion commercial records in nine different files. While preparing these data records for 

PVS was time-consuming, the editing programs are reusable for future vintages of the 

same file. 

Once the comparison fields used in the matching modules have been cleaned, the 

file proceeds through the rest of the PVS modules. Running PVS modules from 

beginning to end (edit program to the very last program) is a fast process. The 2010 

Census Unedited File (CUF), had 350 million records and processed through every PVS 

module, excluding MAF match and SSN verification, in 60 hours . 

In the following sections, we discuss each module of the PVS application. The user 

can choose to employ each module for the incoming file, or exclude certain modules if 

data are not available. Research is ongoing about the impact of switching the order of 

6 The PVS system can also be run to produce multiple matches for each input record (matching 

with replacement). 

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the modules. Preliminary results indicate the current module ordering is optimal. As 

new modules are added, the research on module ordering will be repeated. 

3.4	 PVS Search Modules 

The PVS consists of one exact match – SSN Verification - - and four search modules: 

GeoSearch, NameSearch, DOBSearch, and Household Composition Search (HHComp). 

Incoming records cascade through the PVS – and only records failing a particular 

matching module proceed on to the next module. If a record is assigned a PIK from the 

reference file in any of the modules, no further searches are conducted. Each module 

has its own set of user defined blocking factors and parameter thresholds. 

3.4.1 Verification Module 

If the input file has a SSN data field, it first goes through the verification process. 

The verification module matches the reported SSN from the incoming file to the Census 

Numident file, along with the Alternate Name and Alternate Date of Birth Numident 

files. If the SSN is located in the Census Numident, and the name and date of birth agree 

sufficiently, the SSN is considered verified and the corresponding PIK is assigned. The 

SSN verification module is an exact match to SSN, so no parameter file is required for 

this step. 

3.4.2 GeoSearch Module 

The GeoSearch attempts to find SSNs or ITINs for incoming records that failed the 

verification module or without reported SSNs. This module links records from the 

incoming file to the GeoBase through blocking passes defined in the parameter file. 

The typical GeoSearch blocking strategy starts with blocking records at the 

household level, then broadens the geography for each successive pass and ends at 

blocking by the first three digits of the zip code. The typical match variables are first, 

middle, and last names; generational suffix; date of birth; gender and various address 

fields. 

The data for the GeoSearch module are split into 1,000 cuts based on the first three 

digits of the zip code (zip3) for record. The GeoSearch program works on one zip3 cut 

at a time, with shell scripts submitting multiple streams of cuts to the system. This 

allows for parallel processing and restart capability. 

The GeoSearch module also incorporates the adjacency of neighboring areas with 

different zip3 values (Miller, Bouch, Layne, 2012). This can eliminate the bias of limiting 

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the blocking strategy to exact match on zip3 and obviates missing links based on zip3 

blocking. 

After the initial set of links is created, a post-processing program is run to 

determine which of the links are retained. A series of checks are performed. First the 

date of death information from Numident is checked. Next a check is made for more 

than one SSN assigned to a source record. If so, the best link is selected. If no best SSN 

is determined, all SSNs assigned are dropped and the next module begins. A similar 

post-processing program is run at the end of all search modules. 

3.4.3 NameSearch Module 

The NameSearch module searches the reference files for records failing the 

Verification and GeoSearch Modules. Only name and date of birth data are used in this 

search process. NameSearch consists of multiple passes against the Numident Name 

Reference file, which contains all possible combinations of alternate names and 

alternate dates of birth for each SSN in the Census Numident file, and includes data for 

ITINs. 

The typical NameSearch blocking strategy starts with a strict first pass, blocking 

records by exact date of birth and parts of names. Successive passes block on parts of 

the name and date of birth fields to allow for some name and date of birth variation. 

The typical match variables are first, middle and last names, generational suffix, date of 

birth, and gender. 

After the initial set of links is created, a post-processing SAS program is run to 

determine which of the links are retained, similar to the program used after the 

GeoSearch. 

3.4.4 DOBSearch Module 

The DOBSearch module searches the reference files for the records that fail the 

NameSearch, using name and date of birth data. The module matches against a re-split 

version of the Numident Name Reference file, splitting the data based on month and day 

of birth. 

There are typically four blocking passes in the DOBSearch module. The first pass 

blocks records by first name in the incoming file to last name in the DOB Reference file 

and last name in incoming file to first name in the DOB Reference file. This strategy 

accounts for switching of first and last name in the incoming file. 

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3.4.5 HHCompSearch Module 

The HHComp Search module searches the reference files for records that fail the 

DOBSearch. To be eligible for this module, at least one person in the household of an 

unmatched person must have received a PIK. 

This module creates an eligible universe by selecting all not-found persons from the 

input data where at least one person in their household received a PIK. A reference file 

is created at run-time. 

For persons with a PIK in the eligible household, all of the geokeys from the PVS 

GeoBase are extracted for each of these PIKs. The geokeys are unduplicated and all 

persons are selected from the PVS GeoBase with these geokeys. Next, the program 

removes all household members with a PIK, leaving the unPIKed persons in the 

household. This becomes the reference file to search against. There are typically two 

passes in this module. Records are blocked by MAFID, name, date of birth, and gender. 

3.5	 Master File Creation 

Another feature of the PVS is the creation of a master file for the analyst. The master 

file creation is the last step in the PVS process. This program collects the results of each 

search module and creates a variable describing the final disposition of the PIK 

assignment – the module it was assigned in or the reason for the inability to assign a PIK 

(e.g., respondent’s SSN is in a reference file, but the name is not a match). The program 

adds the PIK, MAFID and Census geographical codes to the incoming file and removes 

SSN or ITIN. 

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IV. PVS RESULTS 

This section describes the results for some of the files CARRA has processed 

through the PVS system. The primary success measure for the PVS is the number of 

people matched to a reference file and assigned a PIK. 

Table 2 presents detailed PVS results for three types of files: 2010 commercial data, 

a 2011 Federal representative file,

7 and the 2010 Census of Population and Housing 

(decennial census). In each of the three files, some records lack the necessary 

information to continue through the PVS. Ninety nine percent, 100 percent, and 97 

percent of records for commercial, the Federal, and Census data have the necessary 

information to proceed through PVS. 

The Decennial Census file doesn’t contain SSNs, while the some of the commercial 

files and most of the Federal files do. The files with SSNs are eligible to go through the 

Verification module. In the commercial and the Federal file one record represents a 

person (person-level) and do not reflect household rosters. Therefore these files are not 

put through the Household Composition module. The Decennial Census persons are 

enumerated within households, and these records were submitted to the Household 

Composition module, provided they failed previous modules. 

The SSNs in the Federal file are verified at a much higher rate than the commercial 

files. This seems reasonable, as participation in Federal programs requires accurate 

input. As show in Table 2, 99.9 percent of the Federal file records where verified leaving 

a scant .1 percent to proceed through the other probabilistic modules. In the 

commercial files, 76 percent of records were verified in the Verification module. 

Because records for the 2010 Decennial Census lack SSNs, this file is sent to the 

probabilistic GeoSearch module and PIKS are assigned to 86 percent of the records. Of 

the 60,351 records sent to GeoSearch for the Federal file, 56 percent have a PIK 

assigned. The rate for the commercial files is 29 percent. The GeoSearch module 

assigned more PIKs to the census data than the commercial data because census 

addresses are generally cleaner and more complete. 

7 The commercial file results are the average of two commercial files and the Federal file is left 

unnamed. 

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Table 2. Sample PVS Results 

PVS/MAFMatch Results 

Average Of 

2 Commercial Files 2011 Federal File 

2010 Decennial 

Census 

# Records delivered 339,295,722 53,181,072 312,471,327 

# Addresses to MAFMatch 339,295,722 53,181,072 

Matched to MAF 283,605,634 47,721,226 

% with MAFID 83.59% 89.73% 

# Person Records 339,295,722 53,181,072 312,471,327 

NO SEARCH: Refuse/OptOut (VERFLG=R,O) 0 0 0 

NO SEARCH: Blank Name (VERFLG=X) 22,491 0 10,367,975 

Persons Available for PVS 339,273,232 53,181,072 302,103,352 

With SSN (any 9 digit number) 257,979,068 53,118,553 0 

No SSN - to search 81,294,164 62,519 302,103,352 

To VERIFICATION (with SSN) 257,979,068 53,118,553 0 

Verified 195,571,749 53,058,202 0 

NOT Verified - to search 62,407,320 60,351 0 

Percent VERIFIED 75.81% 99.89% 0 

To GEO Search 143,701,483 122,870 302,103,352 

Found in GEO Search (VERFLG=S) 41,847,479 68,525 259,873,717 

NOT found in GEO Search 101,854,004 54,345 42,229,635 

Percent Found in GEO Search 29.12% 55.77% 86.02% 

To NAME Search 101,854,004 54,345 42,229,635 

Found in NAME Search (VERFLG=T) 5,328,014 13,158 19,960,452 

NOT Found in NAME Search 96,525,990 41,187 22,269,183 

Percent Found in NAME Search 5.23% 24.21% 47.27% 

To DOB Search 96,525,990 41,187 22,269,183 

Found in DOB Search (VERFLG=D) 73,802 587 304,690 

NOT Found in DOB Search 96,452,188 40,600 21,964,493 

Percent Found in DOB Search 0.08% 1.43% 1.37% 

To HHComp Search 0 0 21,964,493 

Found in HHComp Search (VERFLG=U) 0 0 1,975,295 

NOT Found in HHComp Search 0 0 19,989,198 

Percent Found in HHComp Search 0 0 8.99% 

Total TO PVS (Avail for PVS) 339,273,232 53,181,072 302,103,352 

Total validated 242,821,044 53,140,472 282,114,154 

Total not validated (of avail) 96,452,188 40,600 19,989,198 

% Validated (OF AVAILABLE) 71.57% 99.92% 93.38% 

% Validated (OF ALL) 71.57% 99.92% 90.28% 

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The NameSearch and DOBSearch yield another 6 percent PIKs for the commercial 

data, 26 percent for Federal data, and 49 percent for the Census data. Only the Census 

file is sent through the household composition module, assigning PIKS for an additional 

9 percent of the records . 

In the last two lines of Table 2, we present the overall number of records that get 

PIKS. One line shows the percentage of the records available to be searched and the last 

line describes percentages for the entire dataset, including records not sent to any of 

the modules. The Federal file has the highest percent validated, the Census has the 

second highest. While commercial files have the lowest percent validated, the rate is 

above 70 percent. The reference files are largely SSN based, resulting in higher 

validation rates in Federal files. 

The PVS provided the linking capability for the 2010 Census Match Study (O’Hara 

and Marshall, 2011). Without the ability to link persons across files via the PIK, the 

research for the Census Match Study could not be undertaken. Assigning MAFIDs to 

addresses in administrative data through the PVS process also proved invaluable to the 

study. 

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V. CONTINUOUS ENHANCEMENTS 

The PVS is programmed in the SAS language, making it accessible to programmers 

and analysts alike. The few C language subroutines used are transparent to analysts 

because they are called within SAS programs. With the SAS expertise within the Census 

Bureau, code alteration and support requirements are met with ease. 

The modular nature of the PVS is advantageous for setting parameter estimates. It is 

also beneficial if problems are encountered and the program needs to be restarted. 

Further the modular nature of the PVS allows the analyst to select modules depending 

on their source data. The PVS also supports parallel processing via scripting, which 

allows more than one process to run at a time (up to 80 on CARRA’s existing Linux 

machine), greatly speeding up the process. 

Each search module utilizes the same Multi-Match engine, eliminating the need to 

write specialized code for different linkage types (GeoSearch, NameSearch, etc.). The 

engine is written in SAS and called from each search module. Each of the modules 

passes a parameter file to the Multi-Match engine. 

Finally, PVS offers analysts the ability to easily examine links in each module. Links 

are presented with the source record, the reference record, the matching fields, the pass 

in which the records were matched, and the score for the match. This provides the 

analyst with invaluable information for checking the results of the matching and to 

discern patterns in their data. 

A criticism (NORC 2011b) of the production use of PVS (versus research usage) is 

that it sets a single threshold controlling the probability of false linkages, but no control 

for the probability that a link is in fact a mismatch. Setting one threshold means the 

analyst can only change the probability of false matches or the failure to link matched 

records, but not both. Testing and research have indicated that a single threshold 

performs extremely well. 

CARRA is continually updating and improving the PVS. Research is under way to 

estimate overall false match and non-match rates in the PVS. Concomitant with this 

effort, CARRA is developing a method to estimate the probability of a link, in order to 

provide analysts with a measure of the certainty of a link. Other current and planned 

research projects include: implementing the EM algorithm to automatically generate m 

and u probabilities, and developing a model to determine false match rate and matching 

bias. 

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VI. SUMMARY 

The PVS has been used for over a decade at the U.S. Census Bureau. To date, over 

120 survey, administrative record, and commercial files have been processed in a 

production environment through the PVS. It is robust, proven, and flexible software that 

provides an end to end process. 

The PVS is well maintained software, providing orderly steps for probabilistically 

assigning unique person and address identifers (PIKs and MAFIDs) to data. The PIK or 

MAFID facilitate linkage across files. The PVS is written in SAS, with some calls to C 

routines, and can be well understood by users. It makes use of generalized matching 

software, Multi-Match, and provides many tools for the analyst to check parameters and 

matching results. 

Core expertise and institutional knowledge resides in CARRA for using and updating 

the software, setting parameters, and interpreting PVS results. There are opportunities 

to increase functionality of the current PVS. These challenges and issues are actively 

being researched by CARRA. 

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Larsen, M.D. (2010). Record Linkage Modeling in Federal Statistical Databases. FCSM 

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McGaughey, Anne (1994). “The 1995 Bureau of the Census Computer Name 

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Michelson, M. and Knoblock, C. A. (2006). “Learning Blocking Schemes for Record 

Linkage,” Proceedings of AAAI-2006. 

Miller,C., Bouch, M., Layne M. (2012). “Spatial Adjacency Search Module for the PVS”.U.S. 

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