In 1968, Congress created NFIP to address the increasing cost of federal disaster assistance by providing flood insurance to property owners in flood-prone areas, where such insurance was either not available or prohibitively expensive. The 1968 law also authorized premium subsidies to encourage property owner participation. To participate in the program, communities must adopt and agree to enforce floodplain management regulations to reduce future flood damage. In exchange, federally backed flood insurance is offered to residents in those communities. NFIP was subsequently modified by various amendments to strengthen certain aspects of the program. The Flood Disaster Protection Act of 1973 made the purchase of flood insurance mandatory for properties in special flood hazard areas—areas that are at high risk for flooding—that are security for loans from federally regulated lenders and located in NFIP participating communities. This requirement expanded the overall number of insured properties, including those that qualified for subsidized premiums. The National Flood Insurance Reform Act of 1994 expanded the purchase requirement for federally backed mortgages on properties located in special flood hazard areas. Congress has passed two key pieces of legislation designed to reform NFIP. The Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert- Waters Act), enacted in July 2012, instituted provisions to help strengthen NFIP’s future financial solvency and administrative efficiency. For example, it required FEMA to phase out almost all discounted insurance premiums and establish a reserve fund. As implementation proceeded, however, affected communities raised concerns about some Biggert- Waters Act requirements. The Homeowner Flood Insurance Affordability Act of 2014 was enacted in March 2014 and sought largely to address affordability concerns by repealing or altering some Biggert-Waters Act requirements. In this context, HFIAA included provisions that FEMA produce a study and submit a report that assess and recommend options, methods, and strategies for making voluntary CBFI available through NFIP. According to FEMA, as of March 2016 there were more than 5 million NFIP policies in force, which were spread across more than 22,000 communities throughout the United States and its territories (see figs. 1 and 2). FEMA defines a community as a political entity that has the authority to adopt and enforce floodplain ordinances for the area under its jurisdiction which is—in most cases—an incorporated city, town, township, borough, village, or an unincorporated area of a county or parish. While FEMA could potentially modify this definition to include other types of communities for a CBFI option, using the number of communities currently participating in NFIP provides one measure of how many communities could hypothetically pursue a CBFI option. In 2007, we identified four broad policy goals for federal involvement in natural catastrophe insurance: (1) charging premium rates that fully reflect actual risks; (2) encouraging private markets to provide natural catastrophe insurance; (3) encouraging broad participation in natural catastrophe insurance programs; and (4) limiting costs to taxpayers before and after a disaster. We identified these goals by drawing insights from a variety of sources: past GAO work, legislative histories of laws that changed the roles of state governments and the federal government after disasters, bills considered by Congress, interviews with public and private sector officials, and articles written by experts in insurance economics. We believe that the four goals we identified accurately capture the essential concerns of the federal government. We have previously used these policy goals to evaluate potential changes to NFIP. We believe that they are still relevant and could also be used to evaluate a CBFI option. We determined that the CBFI study objectives and methodology agreed upon by FEMA and NAS were reasonable. The objectives were clearly stated and designed to provide relevant, high-level considerations that could help FEMA decide whether CBFI should be implemented before determining how it should be implemented, which FEMA officials said was an important step. The methodology was consistent with the study’s objectives and was reasonable given the limitations identified by FEMA: short time frames, the need to obtain informed opinions, and unavailable data. As a result, the study included findings that helped FEMA draw conclusions about whether and how to implement CBFI, if it chose to do so. FEMA and NAS took several steps to design the objectives and methodology of the CBFI study. FEMA initially provided NAS with documents that included background information on the purpose of the study and proposed a methodology and objectives. Then, NAS officials responded with minor modifications that reflected what NAS could do to meet FEMA’s needs. FEMA and NAS officials told us that they held two meetings and communicated via email before agreeing to the methodology, objectives, and time frames (see fig. 3). According to FEMA and NAS officials, FEMA and NAS agreed that the study’s objectives were to examine future prospects for CBFI by identifying and discussing issues that would require further evaluation in order for FEMA and others to better evaluate CBFI’s strengths and weaknesses. According to FEMA officials, the agreed-upon objectives met their needs. To execute the CBFI study, NAS convened an expert committee to produce a report using a consensus report process. The committee was composed of 12 members that represented academia, the private sector, and state and federal government. The committee met twice: the January 2015 meeting featured guest presentations, and the March 2015 meeting was convened in a workshop-type format with multiple panels of external speakers. Following these meetings, the NAS study director, committee chair, and other committee members developed sections of the study and all committee members signed off on the full study. Prior to publication, NAS conducted an independent external peer review by experts who NAS recruited based on their technical expertise and breadth of perspectives. NAS and FEMA officials explained that they decided to use the consensus report process because it offered several benefits and did not face the same limitations that other methodologies would have faced. According to NAS officials, because consensus reports modulate different perspectives and identify new concepts and approaches, this approach was appropriate to meet the study’s objectives. FEMA officials explained that they requested a consensus report methodology because it would provide independent, creative, and unbiased ideas from experts who already had a deep contextual knowledge of NFIP. Further, FEMA officials said that alternative approaches they considered would have faced various limitations. They stated that community-based surveys or listening sessions, for example, would have taken more time and might not have reached audiences that could provide well-informed opinions. Data analysis was not considered a viable option because FEMA does not have the data it would need to determine hypothetical costs for participating communities, homeowners, and FEMA. For example, as we have previously reported, FEMA does not collect all information necessary to determine flood risk, which is a key factor for determining NFIP premiums for individual policyholders or, potentially, communities. We determined that FEMA’s study provided relevant information for evaluating the advisability of implementing CBFI. The study identified and discussed seven main areas for further consideration in designing a CBFI option for potential implementation. Risk bearing and sharing—A CBFI option could conceivably shift risk- bearing to communities, private insurers, or individuals depending on how it is structured. Responsibilities for writing policies and loss adjustments— Participating insurance agents write policies and collect premiums under NFIP, but CBFI policies could be written at the community level. Coverage limits, standards, and compliance—Movement to a CBFI policy option could provide a community with an opportunity to reconsider flood exposures, such as extending the exposure beyond individual homes to public infrastructure. Underwriting, pricing, and allocation of premium costs—Several complex considerations could fall under this topic, including methods used in setting premiums, the extent to which catastrophic losses would be reflected, and the allocation of premium costs among homeowners. Administrative capabilities—Communities would likely not have expertise for undertaking the administration of CBFI policies, but depending on how a community is defined, it could have the means for collecting funds to pay for CBFI premiums. Confirming compliance with mandatory purchase requirements—A community-based policy might have to maintain some aspect of individual property coverage in order to satisfy mandatory flood insurance purchase requirements, which could be administratively burdensome. Pricing expertise, including valuation of mitigation measures—Pricing of CBFI policies would need to account for the risk underwritten and the savings expected from mitigation measures. The study also provided other relevant information related to CBFI, such as discussion of potential benefits and challenges, a conceptual rationale for identifying cases in which CBFI may or may not be a good option, and considerations for defining “community” in the context of CBFI. For example, the study reports that benefits could include reduced administrative and transaction costs, increased take-up rates, and promotion of mitigation efforts and floodplain management. The study also reports that challenges could include lack of community interest; limited implementation capability; likely need to create many approaches given variation in population size, geography, and authority to regulate land use and collect revenue; and political obstacles. Additionally, the study developed a conceptual rationale for identifying cases in which CBFI may or may not be desirable, and also identified several factors that could make CBFI more or less desirable than individual flood insurance policies. In addition, the study notes that FEMA may want to consider broadening the current definition of “community” because it may be too narrow in the context of CBFI. Specifically, the study noted that while a town or city would clearly be considered as a community under FEMA’s current definition, the status of areas such as business districts or gated communities would be unclear and, as a result, it is difficult to say whether or not these kinds of areas would be eligible to purchase CBFI policies. To further assess FEMA’s study, we evaluated relevant elements of its findings against the four public policy goals for federal involvement in natural catastrophe insurance that we have previously identified. The public policy goals, along with examples of elements from the study, follow. 1. Charging premium rates that fully reflect actual risks.