Flood Insurance

The National Flood Insurance Program (NFIP) was created to provide “a reasonable method of sharing the risk of flood losses through a program of flood insurance which can complement and encourage preventative and protective measures.” To foster increased participation, the NFIP did not charge actuarially sound rates, or increase rates based on previous loss experience. Successive catastrophic storms and underpriced premium revenues have left the program nearly $21 billion in debt, even after Congress cancelled $16 billion in 2017. This requires the program to borrow significant amounts from the U.S. Treasury. Still, rates are rising on many policies, creating a burgeoning U.S. private flood insurance industry. Congress could shift more of the burden off the federal government and onto the private sector by removing impediments to the industry’s development; better aligning premiums and risks; ending the habit of “grandfathering” older rates on properties with increased risk; increasing rewards for mitigation; more accurate mapping; and the use of means-tested affordability measures or re-homing subsidies for low-income property owners in flood-prone areas.