Hurricane Harvey Tests Limits of Federal Flood Insurance Program

In addition to the loss of life, mass evacuations and extensive property damage in the Houston area, Hurricane Harvey’s impact on southeastern Texas is offering another grim reminder: The federal government’s national flood insurance program is about to become even more financially unsustainable.

Operated by the Federal Emergency Management Agency (FEMA), the National Flood Insurance Program (NFIP) has covered coastal properties since private insurers began refusing to insure these properties the 1970s. FEMA works with private insurance companies who underwrite these homeowners’ policies. FEMA flood maps determine the cost of these policies’ premiums once homeowners purchase them. In the event of a flood, the insurance company determines the scope of the damage and much can be paid out to the policy holder. Those same companies collect the premiums, and keep some of the funds to cover their expenses.

Since the program launched in 1978, NFIP has worked largely as planned, taking in more in premiums than it pays out for property damage reimbursements. But Hurricane Katrina in 2005 and Superstorm Sandy in 2012 together walloped the program.

Now, NFIP is over $24 billion in debt, and most experts agree that this deficit has grown largely for two reasons. First, FEMA has been slow to update its maps – in the aftermath of Katrina, it had turned out its maps had not been updated in over 20 years. The Natural Resources Defense Council (NRDC) also claimed that out-of-date maps contributed to both the shock and damage across New York and New Jersey after Sandy pummeled the region.

Furthermore, NFIP has been a political football, as politicians from coastal states have been loath to permit premiums increases under their watch. Proposals to account for risks due to not only historic flood threats, but to also for climate change and sea level rise risks, have long been a non-starter on Capitol Hill.

Even though mounting evidence suggests that more flooding over the past decade has occurred in areas outside conventional flood plains, citizens still covet homes in coastal areas. Congress passed a law in 2012 that required FEMA and NFIP to charge market rates, and climate change became a factor in how these policies were priced. But homeowners pushed back hard, and Congress moved quickly to undo that law. Another rate increase was enacted in 2015 as Congress scrambled to find a way to hack away at NFIP’s deficit, but homeowners lashed out again, and the cycle has continued. In recent years, many homeowners believed FEMA’s new flood maps were often arbitrary – giving opponents even more ammunition in their fight against higher flood insurance premiums.

Therefore, while many politicians and citizens are beside themselves over the Affordable Health Care Act (“Obamacare”), NFIP’s single-payer insurance system is asking taxpayers to subsidize the lifestyle choices of people who insist on living near the water – but do not want to pay market rates for insurance. “Federal officials in Washington set rates and taxpayers assume all the risks,” Eli Lehrer summed up on Huffington Post in 2014.

According to a Reuters interview with an executive at the budget watchdog group Taxpayers for Common Sense, the program’s $24 billion deficit could surge as high as $30 billion as claims filed in Harvey’s aftermath begin to accumulate. But do not watch for improvement on this front at any point soon. For example, in 2015, former President Obama issued an executive order that sought a new flood risk reduction standard for federally funded projects. But President Trump revoked that order on August 17. The result, insists Taxpayers for Common Sense, will “effectively force taxpayers to subsidize construction that puts people and property in harm’s way. This isn’t even penny wise, pound foolish – it’s just foolish.”

Meanwhile, the U.S. General Accounting Office (GAO), which has several roles including one as the federal government’s lead auditor, has warned that NFIP’s design is not structurally sound – and its precarious financial position has landed the program on the agency’s “High-Risk” list since 2006.

Image credit: NASA/Flickr