An unfortunate reality many residents and businesses face during hurricane season in the United States is that homeowners insurance and renters insurance do not cover flood damage. Only flood insurance, either purchased on the private market or through the National Flood Insurance Program (NFIP), covers damage caused by “rising tide water.” In 1968, Congress passed the National Flood Insurance Act, which was originally designed to promote and encourage “sound land use by minimizing exposure of property to flood losses.” After severe flooding in 1993, Congress amended the law to mandate that residents and businesses in high-risk flood zones – including residents with a federally backed mortgage on a floodplain property – purchase flood insurance. Despite a purchase mandate and a large number of subsidized plans under the NFIP, a February 2013 Congressional Research Service report estimated that only 18 percent of U.S. residents who live in flood zones possess flood insurance of any kind.
If a resident or business does not have flood insurance during a presidentially declared emergency weather event, like a hurricane, they may be able to get assistance from the Federal Emergency Management Agency (FEMA) in the form of a loan. These loans are low interest and do not fully compensate for damages incurred from a catastrophic weather event. Instead, residents and business owners may need to repay the loan in addition to an existing mortgage in order to rebuild.
In 2012, Superstorm Sandy caused severe flooding in highly populated areas of New York and New Jersey and an estimated $50 billion of damage. Sandy was just one of several storms that ravaged the United States over the past few years. The costs associated with those storms represent a substantial part of the current financial hardship for residents – especially those without flood insurance. The NFIP is currently $24 billion in debt due to massive payouts from extreme weather and heavy subsidies for approximately 20 percent of its policyholders.
Between the rising sea level, which is causing current flood zone maps to expand in many areas, and the increasing severity of storms, it is likely that the NFIP will continue to incur debt. To address these anticipated problems, Congress passed the Biggert-Waters Flood Insurance Reform Act in 2012, which: (a) called for premium increases for NFIP flood insurance policyholders; (b) directed FEMA to update flood zone maps for the first time in decades; and (c) lowered subsidies for NFIP policyholders.
The new FEMA flood maps, many of which FEMA revealed in 2013, include an expanded high-risk flooding zone with a mandate for flood insurance coverage. Additionally, many of the subsidies and flood insurance rate increases are scheduled to take effect in 2014. A backlash from residents, who are accustomed to paying very low premiums for flood insurance compared to their actual flood risk, led to the Senate voting to delay the implementation of the Biggert-Waters Act in January 2014.
On March 4, the House of Representatives passed a separate reform bill that provides some retroactive funds to individuals affected by the NFIP changes and directs FEMA to “minimize the number of policies with annual premiums that exceed one percent of the total coverage.” Both bills are now in front of the other Congressional chamber, with some hope of the House version of the bill passing the Senate, but it is unlikely that President Barack Obama will support the measure. In a 27 January 2014 statement, the Obama Administration stated that it could not support any delay in the Biggert-Waters reform measures because the “implementation of these reforms would further erode the financial position of the NFIP, which is already $24 billion in debt.”
Although the Obama Administration’s stance on flood reform measures is politically unpopular, this approach would help curb the financial burden of rebuilding homes and businesses in areas increasingly prone to flood risk. One element of the House bill that could be beneficial to all home and business owners is a mandate to notify communities affected by new flood map models and provide a 30-day consultation period to discuss the models. This notice requirement could help owners better understand the high-risk areas in which they currently reside, helping individuals choose whether or not to remain in that area as the climate and risks change.
These changes to flood insurance premium subsidies will be very difficult for homeowners and business owners to bear, but without a way to address the increasing risk of flooding in these areas, it is economically untenable to maintain the old system. Even though some homes and businesses were located in the floodplains before the enactment of the NFIP, the new premiums more closely reflect the actual risk of flooding in these areas as the climate changes and the United States continues to experience severe weather events.
To avoid overly burdensome rebuilding costs and prepare for flooding, all residents should determine if they live in a flood zone. All owners of homes and businesses located in flood zones should purchase and maintain flood insurance in order to avoid financial ruin. Structures also should be as flood resistant as possible, even if that means raising them into the air to avoid flood damage. Although these preventative solutions are expensive, it will be much less expensive than the damage caused by flooding.