This hurricane season, how can the federal government improve the National Flood Insurance Program?

Sandy flooding in New Jersey
Damaged homes along the New Jersey shore after Sandy. Photo by the U.S. Fish and Wildlife Service via Flickr.

When communities are hit by a hurricane or flooding, the National Flood Insurance Program helps families recover and rebuild. Changes to the program proposed by Smart Growth America—and supported by the Obama Administration—could help homeowners reduce their flood risk and cut costs for the federal government at the same time.

Most homeowners’ insurance policies do not cover damage from flooding, and the National Flood Insurnce Program (NFIP) is a supplemental insurance offered by FEMA to protect families financially from flood damage. Many NFIP plan members pay highly subsidized rates that do not reflect the true risk of flooding or the costs associated with it, and these subsidies have contributed to increased development in flood hazard areas, putting more people and property at risk. All this has come at a high cost to taxpayers: The program is currently almost $24 billion in debt to the Department of Treasury.

To address these and other concerns related to NFIP, last summer Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012. The Act sought to make NFIP rates more risk-based, and to reduce existing subsidies so that policy premiums reflect the true risk of flooding. NFIP has already begun to phase out some of these subsidies.

Then, in October last year, Superstorm Sandy hit and flooded towns and neighborhoods up and down the East Coast. NFIP helped thousands of families recover from the damage: more than 143,000 Sandy-related NFIP claims were filed, and of those, 99.5% have been closed. As of today, the federal government has paid out more than $7.8 billion to NFIP policyholders as part of Sandy recovery. In the wake of the disaster, President Obama established the Hurricane Sandy Rebuilding Task Force to look at how the federal government responded to the disaster and how federal disaster recovery programs could be improved.

Earlier this month, the Task Force released a report with 69 recommendations designed to make sure taxpayer dollars are spent wisely and to help communities be resilient in the face of future storms and one of those recommendations was directed specifically at NFIP. Homeowners have access to little information about their risk of flood damage, the Task Force found, and that means they are unlikely to reduce their exposure to flood risk. The report recommends NFIP provide better information to homeowners about their flood risk, and suggest ways for plan participants to reduce their risk for flooding, among several other improvements.

These suggestions are closely in line with Smart Growth America’s recommendations to improve NFIP for homeowners and reduce costs to the federal government. As the Biggerts-Waters Act is already doing, Smart Growth America recommends NFIP rates be risk-based, and that rate subsidies are gradually phased out. We also recommend targeted assistance for low-income families that should be kept outside the rate structure. In addition, we recommend mitigation funds be made available to help nationally targeted communities develop innovative flood mitigation strategies to protect themselves from future flooding in affordable, accessible and self-sustainable ways. We estimate these changes could save the federal government $8 billion over the next 10 years.

Subsidizing insurance for all flood hazard areas households, no matter their income level, is not an efficient use of federal dollars, leads to higher costs for taxpayers in the long run and does not serve the NFIP’s goals. Learn more about our recommendations to improve the NFIP and other federal real estate programs >>