For the last 15 years, the National Flood Insurance Program — the nation’s primary source of flood insurance — has lurched from one financial crisis to the next, accruing a massive $20.5 billion debt with the U.S. Treasury to cover its persistent shortfalls. Congress’ decision to cancel $16 billion of NFIP debt in 2017 only kicked the can down the road. Now, instead of fixing the program’s core flaws, some lawmakers are willing to throw more good money after bad.
The Build Back Better reconciliation bill being crafted in Congress includes a provision to forgive all of the NFIP’s debt. Handing the failing program a no-strings-attached bailout, and to do so without instituting reforms to put it on a more secure financial footing, is simply irresponsible. Rather than budget gimmicks and profligate spending, lawmakers should make long-overdue changes to how the NFIP operates.
The need for robust flood insurance has never been greater. As climate change advances, once-secure communities are facing worsening flood risks. Scientists at the National Oceanic and Atmospheric Administration estimate that flooding is up to nine times more common in U.S. coastal areas than it was half a century ago. As floods strike with increasing frequency and ferocity, average NFIP claims are rising.
Congress could enact several commonsense measures to stabilize the program and expand access to flood insurance.
First, premiums set by the NFIP should be brought in line with expected costs. Historically, the NFIP has generally underpriced policies based on an outdated formula that does not accurately reflect a property’s flood risk: A 2011 study found some homeowners paid as little as 55 to 60 percent of the full cost. By offering these deep, taxpayer-financed discounts, the NFIP tacitly encourages construction in flood-prone areas and contributes to its own long-term financial woes.
Moreover, the NFIP’s subsidized policies aren’t well-targeted at low-income homeowners. Instead, the wealthiest homeowners disproportionately benefit, often capitalizing on rock-bottom rates to insure their vacation getaways.
To correct these imbalances and set more actuarially-sound premiums, the Federal Emergency Management Agency (which oversees the NFIP) needs to improve its flood mapping practices. A recent report found that FEMA’s current approach to quantifying flood risks does “not reflect hazards such as heavy rainfall and the best available climate science,” and that the agency has been slow to incorporate cutting-edge methodologies into its assessments. In 2017, a study from the Department of Homeland Security’s Office of Inspector General reported that the majority of FEMA’s flood maps did not adequately identify the level of risk. In some cases, communities are still relying on maps created in the 1970s.
Better flood mapping would also allow the NFIP to refocus on one of its central mandates: encouraging flood mitigation. Preparation pays off; studies suggest that every $1 invested in mitigation saves $6 in rebuilding costs.
Buildings that flood repeatedly without basic mitigation measures being undertaken are a major drain on the NFIP’s finances. A Mississippi home worth $70,000, for instance, filed 34 claims with the NFIP from 1978 to 2010 worth $663,000 — more than 9 times the value of the house.
And that’s not an isolated incident. An investigation by USA Today found that owners of 19,600 homes and commercial buildings had received insurance payments from the NFIP that exceeded the value of their property. So-called “repetitive loss properties” like these have been responsible for 30 percent of NFIP claims, despite accounting for only 1 or 2 percent of the program’s policies. Creating stronger incentives to make homes and businesses more resilient to floods is a vital objective.
Finally, lawmakers should remove legal barriers that make it difficult for private insurers to offer flood protection — an approach that the NFIP itself has supported. The private sector’s involvement would provide a broader selection of coverage options, spur innovative ways to measure risk, set rates more competitively and reduce taxpayers’ financial exposure to catastrophic weather events. According to economists at the University of Pennsylvania, many consumers would face lower premiums in a private market.
Instead of approving yet another costly bailout, Congress should seize the opportunity to make lasting improvements to the NFIP’s fundamental design.
Steve Pociask is president and CEO of the American Consumer Institute, a nonprofit education and research organization.
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