Pricing Storm Surge Risks in Florida: Implications for Determining Flood Insurance Premiums and Evaluating Mitigation Measures

The National Flood Insurance Program (NFIP) has been criticized for inaccurate flood hazard maps and premiums that are not risk based. We employ granular storm surge data comprised of five different event probabilities with associated flood elevations to calculate surge risk‐based premiums for homes in Pensacola, Florida, which we compare with NFIP premiums that are based on flood risk data with only one event probability (1% annual chance floods). We demonstrate how more granular flood risk data used for calculating risk‐based insurance premiums should be part of the NFIP mapping and rate‐setting processes. We then examine three different sea‐level rise (SLR) scenarios specific to Pensacola from the National Oceanic and Atmospheric Administration (NOAA), and assess surge risk‐based premiums out to 2100. We analyze the cost effectiveness of elevating homes to mitigate surge risks when costs of elevation are one lump upfront sum, and when costs are spread over 30 years via low‐interest mitigation loans. Benefits are the avoided future losses from surge risks going out to 2100 with the three different SLR scenarios. Findings show that it is cost effective to elevate high‐value homes with low first‐floor elevations in the most risky surge zones. Spreading costs of elevation with 30‐year loans should be directed at low‐income households to address affordability concerns. Alternative flood mitigation actions, such as wet floodproofing and elevating electrical and plumbing utilities, should be considered in instances where elevation is not cost effective.