FEMA’s flood insurance program is drowning because of climate change

Three bed, two bath, one massive flood.
Three bed, two bath, one massive flood.
Image: Reuters/Jonathan Drake
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Record flooding from Hurricane Harvey in Texas has brought renewed attention to the National Flood Insurance Program (NFIP), low-cost flood insurance policies offered by the Federal Emergency Management Agency (FEMA) to Americans living in areas of high risk.

The program is based on an agreement between the federal government and municipalities in Special Flood Hazard Areas (SFHAs). The local communities agree to adopt a floodplain management ordinance and in return, the government offers flood insurance within those areas.

Congress intended for the program to be independent, funded entirely by premiums. Climate change and rising sea temperatures, however, have led to more frequent natural disasters, leaving the program billions of dollars in debt.

Is the National Flood Insurance Program running out of money?

Flooding is one of the leading causes of natural disasters with $1 billion or more in damage. Standard homeowner’s insurance in the US doesn’t cover flooding, and most private insurers don’t offer flood policies at all. Congress created the NFIP in 1968 to offer insurance to homeowners in high-risk flood areas that companies refused to cover. The 5 million or so policies under the program are issued by around 80 private companies, and FEMA covers the cost.

The program was intended to be funded entirely with premiums. From 1978 to 2004, the NFIP took in more money than it paid out, according to The Washington Post. But with climate change causing more catastrophic weather events like Hurricane Katrina and Superstorm Sandy (which left the NFIP responsible for losses equal to almost half all the premiums paid from 1978 through 2016), the program is now $25 billion in debt. It borrows from the US Treasury to cover losses, and pays back those loans with interest, at the cost of the US taxpayer.

The National Flood Insurance Program only has $5.8 billion left that it can borrow from the Treasury to meet new claims, according to the Wall Street Journal. Record flooding in 2016 alone left the NFIP on the hook for more than $3.5 billion in claims, so a $5.8 billion borrowing cap puts the program in serious jeopardy.

According to the Journal, the NFIP has 450,000 policies covering $125.7 billion in insured value in the Texas counties affected by the hurricane. More than half of that value is in Harris County, where Houston is.

Experts say the financial future of the NFIP is uncertain. The Government Accountability Office labeled the program “high risk,” saying that while it is a “key component of the federal government’s efforts to limit the damage and financial effect of floods,” it likely “will not generate sufficient revenues to repay the billions of dollars borrowed from the Department of the Treasury to cover claims from the 2005 and 2012 hurricanes or potential claims related to future catastrophic losses.”

What is being done to fix the problems with the National Flood Insurance Program?

Beyond claims of financial mismanagement, NFIP critics argue the program encourages people to rebuild their homes in dangerous flood zones with taxpayers’ money. One option for alleviating some of the program’s financial burden would be to the increase coverage rates homeowners pay, but the NFIP has been limited from raising its rates by a federal statute.

In 2012, US representative Maxine Waters and representative Judy Biggert drafted the Biggert-Waters Act, which would have increased rates for businesses and for properties that flood multiple times. The bill passed in the Senate, but after homeowners raised concern over the huge spike in premiums, Congress passed the Homeowner Flood Insurance Affordability Act in 2014, which delayed the Biggert-Waters reforms for two years. Today, premium costs are rising slowly.

Biggert-Waters authorized the NFIP through Sept. 30, 2017, at which time Congress needs to reauthorize the program. Otherwise, the government will be prevented from issuing new policies (though current ones will remain in effect), and that could jeopardize sales of homes with federally backed mortgages, which are required to carry flood insurance.

The NFIP will likely be facing a tougher reauthorization battle than usual. Earlier this month, president Donald Trump rolled back an executive order from former president Barack Obama’s administration that mandated any construction project receiving federal funds must consider the future effect of flooding in their plans.

How does the NFIP determine flood risk areas?

The National Flood Insurance Program uses US flood maps to determine the Special Flood Hazard Areas. Those areas are enormously affected by climate change, which increases the frequency of disaster-level precipitation and the strength of storms. Warmer water also takes up more volume, so water levels rise even before accounting for water from melting glaciers. Higher sea-levels mean an increased risk of flooding and a bigger storm surge when a weather event like Harvey hits land.

FEMA’s flood maps are outdated and do not reflect the increased threat from floods created by climate change. This makes it very difficult to assess risk on a national scale. The agency has been relying on decades-old maps, many of which were created before the advent of sophisticated computer modeling. (The New Orleans flood map was previously updated 20 years before Hurricane Katrina hit.) As a result, people in high-risk areas are paying low premiums that don’t reflect the true level of flood risk for their homes. There are other people in risk areas that haven’t even been identified as flood-prone at all, so the NFIP is unavailable to them.

The agency made an effort to start updating its maps a few years ago, though the Trump administration has proposed cutting $190 million annually from the mapping work.

Is National Flood Insurance only available to homeowners?

Per FEMA, flood insurance is “available to protect homes, condominiums, and nonresidential buildings including farm and commercial structures in participating communities. Contents coverage also is available, so coverage is available to renters as well.”

Does FEMA offer financial aid for flood victims beyond NFIP?

To benefit from the National Flood Insurance Program, you must have a policy in effect at the time of the storm, and it takes 30 days from purchasing to go into effect. Homeowners affected by the storm who don’t already have flood insurance can apply for a disaster assistance grant through FEMA. The Individuals and Households Program provides financial aid for repairs and housing-related expenses. The president needs to declare an emergency or natural disaster in order to trigger the release of disaster-assistance funds. (Trump declared Hurricane Harvey a disaster on Aug. 25.)

The Insurance Institute has a full list of FAQs about FEMA disaster assistance here.