Reform the National Flood Insurance Program
Prompt reauthorization and reform of the National Flood Insurance Program is needed to ensure a fiscally solvent program that provides affordable and actuarially responsible flood insurance for homeowners and businesses, and empowers individual and city-level actions to proactively reduce flood losses
Where We Are Today
The National Flood Insurance Program (NFIP) is vitally important to the prosperity and resilience of cities, not only because it helps cities manage their flood risks, but also because it provides insurance payments needed by individuals and businesses to recover from catastrophic flooding. City real estate markets are dependent on the NFIP, because obtaining and maintaining flood insurance is a required condition for federally-backed and many other mortgages.
The NFIP is critically important to cities in these times of growing and changing flood risks. Rising sea levels and more frequent and intense storm events are already causing negative impacts in cities across the country. It is estimated that 6 feet of sea-level rise would double the number of structures at risk of flooding to over 13 million. Increasingly, cities are seeing flood impacts in areas outside mapped flood hazard areas, as demonstrated by recent flood events in Houston, Nashville, and Boulder. Nuisance flooding during sunny day conditions, and rising insurance rates, are already negatively affecting homeowners and businesses in low-lying areas of cities like Norfolk and Miami.
These cities have identified issues with coastal and stormwater flooding among their resilience challenges: Atlanta, Boulder, Boston, Chicago, El Paso, Honolulu, Greater Miami and the Beaches, Louisville, Minneapolis, Nashville, New Orleans, New York City, Norfolk, Oakland, Pittsburgh, San Francisco, Seattle, St Louis, Tulsa, Washington DC
The continued viability and solvency of the NFIP, however, is threatened by a number of challenges: the program is $24.6 billion in debt to the U.S. Treasury and taxpayers; insurance rates are rising; subsidized insurance rates continue to mask the real risks of flooding to properties; the program fails to adequately reward community-level actions to reduce flood risks; and the floodplain maps that serve as the basis for rates and local land-use decisions are out-of-date, and do not account for current risk, let alone future risk.
These deficiencies in the program pose numerous challenges for cities. Out-dated floodplain maps, designed to set short-term decisions about the price of insurance, are also used to make decisions with much longer-term consequences, such as infrastructure investment and land-use decisions. Rising rates pose a socio-economic threat to cities that have a significant number of lower-income homeowners and businesses located in flood hazard areas. Rate increases will affect owners of older buildings (i.e., built before codes that require building elevation or flood proofing) who previously received insurance subsidies. For lower-income homeowners and those on a fixed income, rising rates could price people out of their homes, or force people to drop flood insurance, which might otherwise be their sole source of funds to rebuild in the event of flooding. Rising rates may also force landlords to raise rents, exacerbating housing affordability crises facing many cities.
The NFIP was created by Congress in 1968 because private insurers were largely refusing to cover flood losses. It was created with three main purposes: to better communicate flood risks, to provide flood insurance as safety net to help homeowners and businesses rebuild after flood losses, and to encourage local governments to enact better land-use and mitigation practices to reduce flood losses. The program has four main components:
- Floodplain mapping to delineate areas at risk of flooding
- Insurance purchase requirements
- Minimum development standards for floodplains
- Incentives and funding for flood hazard mitigation measures.
The Federal Emergency Management Agency (FEMA) is charged with administering the Program Congress should fund a National Academies study to identify strategies for creating a national flood mapping initiative that coordinates federal efforts, streamlines the process, and creates clear standards for developing floodplain maps.
To address the rising debt of the program, in recent reauthorization legislation (The Biggert-Waters Flood Insurance Reform Act of 2012 (BW12) and in the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA)), Congress reformed the program to phase out insurance subsidies for a subset of properties including non- primary homes, commercial properties and properties that have experienced severe repetitive loss put in place when the program was created.
The program must be reauthorized by Congress by December 2017. This provides an opportunity for city leaders to seek additional reforms to the NFIP so that it helps to create better incentives for cities to enhance flood resilience, while providing an affordable mechanism to support recovery and rebuilding for their residents and businesses.