This year is the 50th anniversary of the National Flood Insurance Program, and this federally subsidized program has not aged well. In 2017, it had the second-highest claim loss year in its history and several recent hurricanes have exposed fundamental flaws in the NFIP.
Since 2004, the program has borrowed $39.4 billion from the federal government and is expected to continue to lose $1.4 billion a year.
The program’s goals remain laudable: Provide affordable flood insurance, improve flood-plain management and develop maps to identify areas prone to inundation.
Since insurers will only take on risks that give them a reasonable expectation of a return on investment, the private market represents only 15 percent of insured flood risks as of 2017. The NFIP offers subsidized rates to coastal and inland properties in Special Flood Hazard Areas but these rates don’t generate enough money to pay the losses covered by the NFIP.
According to CoreLogic, about a quarter of residential and commercial properties in the country are at high or moderate risk of flooding, but are outside designated high-risk areas. Only 28 percent of the owners of properties in high-risk areas purchase flood insurance.
In the last 50 years there has been an explosion of development in what is called the 100-year flood plain. Today, 41 million people (about 13 percent of the U.S. population) live in areas of potential inundation. The flood plains contain more than $5 trillion in assets.
Officials must consider development, infrastructure and populations when planning communities, but the data change often, so the risk assessment is often flawed when the data do not reflect current and expected conditions.
The NFIP developed maps of flood-hazard zones, but they are often out of date.
Simply, NFIP is broken. In 2016, the Government Accountability Office made recommendations to fix its deficiencies. Those were the same recommendations it made in 2008 and again in 2013. They were never addressed because they were so expensive.
Congress can’t agree on how to reform flood insurance. Reform bills are often derailed by special interest groups, such as developers, real estate agents and even well-intentioned consumer advocates. Lawmakers also face opposition from constituents who want to avoid higher premiums.