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The National Flood Insurance Program: Drowning in Rising Sea Levels and Debt

By Jeff Luse

America’s coastal communities are growing. What used to be quaint summer beach towns have become bustling communities. In 2019, 94.7 million Americans lived in coastline regions, a jump of 15% since 2000. While the coast offers sunshine, fresh air, and ocean waves, more and more people are becoming vulnerable to the dangers of extreme weather events such as hurricanes and floods.

The year 2020 was a record breaking year for hurricanes. A record 30 storms occurred, 12 of which made landfall on U.S. soil. While the 2020 hurricane season was more active than average, the economic damage from these storms tallied $37 billion, below the expected $54 billion. Still, with the population and wealth of coastal communities growing, it is expected that the economic damage from extreme weather events is likely to increase.

Flooding, the nation’s most expensive natural disaster, is another threat to coastline communities, with a 2020 report finding that U.S. high tide frequency (HTF) has increased two-fold since the year 2000.

With the damage from storms likely to increase, failed government resiliency programs are putting American citizens in harm’s way. A new report released today by the R Street Institute and the Conservative Coalition for Climate Solutions (C3 Solutions) highlights the need for the U.S. to address this problem.

The report titled “Opportunities to Reduce Taxpayer Burdens from Hurricanes and Storm-Related Flooding” analyzes some of the ways in which bad government policies are leading to increased economic and environmental damage along the coast.

“Our study shows that more people are at risk of flooding than ever before. Congress needs to act now to reform this costly and ineffective program and encourage private sector solutions before costs increase even further,” said C3 Solutions’ President and CEO Drew Bond.

The costly and ineffective program in question: The National Flood Insurance Program (NFIP) administered through FEMA. The NFIP, which is the largest provider of flood insurance in the nation, is over $20 billion in debt. This debt is due in large part to poorly priced policies that do not accurately reflect risk, incentivizing economic and environmental damage.

“Because the NFIP allows customers to acquire flood insurance at a rate below what the market would deem is appropriate for their risk, it acts as an incentive for residents to move into and develop areas that are high risk,” write the authors of the report.

Not only is the NFIP incentivizing residents to move into harm’s way, it is also failing to protect low-income families from the risk of floods. A 2013 report from the Government Accountability Office (GAO) found that the majority of NFIP premiums were in high-income areas and for second homes.

“While there is an argument to be made that low-income and vulnerable communities should be protected from flood risk,” the report reads, “it seems that the NFIP has instead been acting as a wealth transfer from taxpayers to high-income households and subsidizing beach homes.”

Despite the fact that the NFIP is severely in debt and is failing to protect its policyholders, the R Street Institute and C3 Solutions highlight several ways in which the program can be reformed to better protect coastal communities and the federal budget. These include updating flood maps, transferring premiums to private insurers, ending NFIP subsidies for new construction in high-risk flood areas, more accurately pricing premiums to reflect risk, and investing in natural solutions to mitigate flood damage.

While many people believe that the only way to mitigate the effects of climate change is to spend more money, this report shows that reforming ineffective government programs and unlocking the power of the private sector can be even more effective. Through fiscal soundness, private sector involvement, and smart building practices we can lessen the effects that extreme weather can have on our society. 

Read the full report here.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.

Copyright © 2020 Conservative Coalition for Climate Solutions

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