Kevin Fish – The National Flood Insurance Program (“NFIP”) provides flood insurance that is subsidized and operated by the Federal Emergency Management Agency (“FEMA”). The NFIP was created in 1968 by Congress in response to immense damage caused by Hurricane Betsy in Florida. It became clear that private insurance companies did not contain the resources or stomach to take on the unpredictability of flooding. However, the NFIP has been flawed for some time and a recent run of hurricanes has further exploited the immense cost of the NFIP and the lack of dollars to pay for the program.
FEMA’s flood insurance is available for homes, condominiums, and nonresidential buildings including farm and commercial structures in participating communities. For a community to participate, it must “adopt and enforce a floodplain management ordinance to reduce future flood risk to new construction in flood plains.” If the community adopts a floodplain management ordinance, the Federal Government makes flood insurance available within the community as a financial protection against flood losses. Most communities in the US participate in the NFIP.
Most mortgages for properties in high-risk flood zones require flood insurance and FEMA’s flood insurance may be purchased through an insurance agent. The premiums are heavily subsidized by the government (tax-payer dollars) to ensure affordable premiums. As a result, the subsidized low premium for flood insurance does not reflect the true level of flood risk for the properties. And citizens continue to build in high-risk flood zones because they are either unaware of the risk and/or undeterred by the low premium. This results in the government paying out claims repeatedly in these high-risk zones.
Roughly 5 million Americans currently hold an NFIP policy, with majority of the policy holders residing in Texas or Florida. However, this number should be much higher. Maps currently used by FEMA to determine the flood risk zones are outdated. (The New Orleans flood map was previously updated 20 years before Hurricane Katrina hit.) And with current climate change and rising sea levels, there is an obligation for these maps to be updated. With the out of date maps, only wealthier property owners with property right along the coast are typically required to acquire flood insurance. However, lesser valued property inland along water ways, where most of the flood damage often occurs, are considered outside the high-risk zone. The agency has tried to update the maps in recent years however the Trump administration has proposed to cut $190 million annually from the mapping work. Because why do the maps need to be updated when climate change doesn’t exist?
Congress intended the NFIP to be an alternative to FEMA’s disaster assistance that would reduce the costs of flood damage, but the NFIP is a fiscal nightmare. Excluding major natural disasters, the annual cost for the NFIP is $5 billion while annual premiums bring in only $3.4 billion. And the immense damage from Hurricane Harvey and Irma has greatly contributed to the program’s $24 billion debt. If the maps were updated, more Americans who should be, would be enrolled in the NFIP, pushing towards a more fiscally responsible program. Communities could also spend more on disaster preparation. Roughly $4 is saved for every $1 spent on mitigation and disaster preparation. Damage costs in Houston after Hurricane Harvey were particularly high because of lax building codes and permissive zoning laws, which did not require homes to have proper flood elevation.
Congress has recently appropriated another $6.7 billion to FEMA, some of which may be put into the NFIP. However, the structure of the program needs to be overhauled by Congress to ensure that the program isn’t in the red year after year. With rising temperatures foreseeably leading to more hurricanes, an overhaul is necessary. Congress desperately needs to make a major re-assessment of the debt-ridden program.
