What is the National Flood Insurance Program, and why is it billions in debt?

What exactly is the National Flood Insurance Program?

The National Flood Insurance Program, administered by the Federal Emergency Management Agency (FEMA), was launched in 1968 after Hurricane Betsy destroyed parts of the Gulf Coast and Florida. Many people did not have insurance. The goal was to make policies affordable.

Communities can voluntarily join the program but have to adopt floodplain ordinances based on FEMA flood hazard maps.

The policies, written by private insurers but backed by the federal program, are affordable because they are essentially subsidized by Americans living in less flood-prone zones who also buy policies.

What does it cover?

Owners of single family homes can purchase up to $250,000 in structural coverage and $100,000 for contents, based on appraised value.  For some, policies can cost a few hundred dollars a year while others pay in the thousands. Business can buy $500,000 of coverage.

How does it work?

Anyone with a government-backed mortgage living in a federally designated flood zone must purchase flood insurance if they are in zones V (highest risk) and A (lower risk).  Those in a third zone, X (lowest) can still purchase insurance.  Premiums are set, in part, according to zone.

Search FEMA flood maps here.

Why is the program  in debt?

FEMA had to pay out more than $16 billion in claims for Hurricane Katrina in 2005, and so it was shelling out more than it was taking in through premiums.  Then came Sandy in 2012, adding $8.6 billion in losses, though that is still climbing as FEMA reviews cases.

Costliest Flooding Events in the U.S.

The top payouts from the National Flood Insurance Program by weather event, in billions. Figures do not include Hurricanes Irma, Harvey, Maria or Jose from this year.
Staff Graphic

By the start of summer, the flood insurance program was $24.7 billion in debt, according to Carolyn Kousky, director of policy research and engagement at the University of Pennsylvania’s Wharton Risk Center, and a nationally recognized expert on the program. She’s researched the program extensively.

Since then, Harvey and Irma likely added $15 billion to $20 billion more to the debt, Kousky said initial estimates showed.

Congress can forgive some of the debt, which gets it off the program’s books. But doing so adds to the federal deficit.

Which parts of the country participate?

Policies are sold in 22,000 communities nationwide, with coastal areas accounting for three-quarters of them. Overall, coastal counties run a $1.5 billion annual shortfall, which is partly offset by the $200 million excess provided by inland areas.

In New Jersey, 235,970 homeowners and businesses pay premiums for $58 billion in insured value.  Ocean City alone accounts for $4 billion of that.

Most Heavily Insured N.J. Towns

The top N.J. municipalities ranked by the value of policies written through the National Flood Insurance Program.
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Is the government trying to fix it?

Congress has passed legislation aimed at phasing out premium discounts given to those who had homes built before flood maps were put into place, as well as having homeowners elevate homes.  Premiums were set to increase 25 percent a year for those insuring second homes until they hit market rates.

But climate change is having an impact as more frequent, bigger storms help increase the program’s debt. “Climate change could increase damage by raising sea levels and potentially also by increasing the intensity of hurricanes,” the nonpartisan Congressional Budget Office has reported.

Proposals have been made to raise premiums to what they might be if a private insurer underwrote the policies. Congress is reluctant to permit that kind of an increase.

President Trump has proposed ending the program for new construction in areas at most at risk of flooding. However, homeowners could still seek private insurance. In general, builders oppose the idea; environmentalists like it.

The program was up for reauthorization at the end of September, but Congress has put off dealing with it until December.