As an economic management technique for distributing flood damage costs, FEMA’s National Flood Insurance Program (NFIP) is designed to pool flood risks and spread damage repayment financing throughout the country. The program’s main goals are to provide flood insurance to as many people as possible while reducing the need for disaster declarations and taxpayer-funded emergency spending bills.
The program has been designed to encourage participation with the understanding that catastrophic loss years will necessitate borrowing from the U.S. Treasury. However, low premiums, in addition to lack of participation, have caused the NFIP to accumulate substantial debt from high-loss years like 2005.
In the flood management industry, there has been a sustained push for modifications to the NFIP. The Association of State Floodplain Managers (ASFPM) provided recommendations to FEMA in January 2022 for reforms to the NFIP. These reforms fall into three primary categories: equity, economics, and evolution.
- FEMA must strengthen development standards for communities participating in the NFIP to avoid development in high-risk areas.
- Disclosure of flood risk must be improved. NFIP data on prior flood damages and claims histories must be more easily available to facilitate risk awareness and management.
- There is a need for improved education about flood insurance policy options for insurance agents and policyholders.
- Congress should clarify funding sources to cover losses during extreme events.
- The NFIP should not be required to pay interest on flood insurance debt to the U.S. Treasury. The program owes over $21 billion to the U.S. Treasury and has paid $5.26 billion in interest to the Treasury since 2005. Future debt and interest payments should be directed as reinvestments back into the NFIP to cover costs of flood mapping and mitigation.
- Funding must be adequate to support better and more frequent mapping updates.
- Risk mapping must identify areas of residual flood risk due to dam and levee failures.
- FEMA must provide funding to support development of state capacity to provide oversight, technical assistance, and training to local communities.
National program, community-level focus
While the NFIP’s recommendations are focused on a broader national scale, communities are the frontline actors in flood risk mitigation, emergency response, and recovery efforts. Leveraging local relationships to inform and enforce policy evolutions is crucial to the long-term success of the NFIP. Highlighting the importance of local involvement, in 2017, the City of Portland, Oregon, commenced a pilot program called the Flood Insurance Savings Program (FISP), to help residents in two low-income neighborhoods manage the challenges of rising flood insurance prices. This program included one-on-one consultations between policyholders and specialized flood insurance agents. The consultations revealed widespread errors in policy pricing that caused homeowners to pay more than was necessary for the flood insurance policies. Additionally, many homeowners were not being adequately advised about cost-effective flood risk reduction measures they could be taking to lower their flood risk and often also reduce their flood insurance costs. This program revealed the need for continuing education for flood insurance agents to provide equitable access to optimal insurance policies.
This example highlights how local disaster relief programs must promote equitable understanding of flood risk and effective mitigation approaches. A local focus on outreach, education, and risk mitigation will provide a strong foundation for flood risk management and adaptability in the face of climate change.