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Expert Voices

Rethinking National Flood Insurance as Toll Rises (Op-Ed)

The storm surge from Hurricane Sandy leaves much of Chincoteague National Wildlife Refuge under water, including this boat ramp along the Assateague Channel.
The storm surge from Hurricane Sandy leaves much of Chincoteague National Wildlife Refuge in Maryland under water, including this boat ramp along the Assateague Channel, on Monday, Oct. 29, 2012. (Image credit: J. Fair/USFWS)

Rob Moore is a senior policy analyst for NRDC where he is part of a team devoted to protecting U.S. water resources. Hecontributed this article to Live Science's Expert Voices: Op-Ed & Insights.

As society looks toward a future with rising sea levels and more frequent and severe storms, the United States can also expect to see more frequent and severe flooding along rivers and coastlines. That means property owners will increasingly turn to the Federal Emergency Management Agency (FEMA) and its National Flood Insurance Program to bail them out.

But why does the federal government underwrite 5.6 million flood insurance policies — in many cases at highly subsidized rates?

Originally, the National Flood Insurance Program was intended to provide insurance to people who could not get flood insurance from private insurance companies. In the past, flood insurance was not easy to come by, since private insurers had largely left that market. Beyond providing insurance, the program was also tasked with mapping out the nation's most flood-prone areas and helping communities prepare for and avoid damage from flooding. In a sense, the program was intended to manage the nation's flooding risk.

But in practice, the program has not managed that risk very well. One could argue that it has, in part, incentivized the development of infrastructure along floodplains and coastal areas. At best, the program has failed to provide a disincentive.

Just last week the National Academy of Sciences published a report about the National Flood Insurance Program — looking specifically at how levees are addressed by the program. But, this report also includes a good overview of the program since its inception and its many past problems, which include:

  • Discounts for the riskiest structures: Nineteen percent of policyholders receive discounts on federal flood insurance simply because the property was built before the first flood insurance maps were produced, or because no elevation data existed to determine flooding risks.
  • Grandfathering: When the federal government updates flood maps to reflect greater flood risks, current policyholders often pay the same premiums, or a discounted rate, even if they've been found to be at higher risk of flooding.
  • A short-sighted system for balancing the books: The federal government calculates its potential financial exposure from flooding by looking at the average flood losses from previous years, while discounting damages from major events that they consider to be statistical outliers, like hurricanes Katrina and Sandy. This "average historical loss" is then used to adjust premiums to balance the books for a given year, while overlooking the longer-term financial risk.
  • Outdated maps: The flood maps used to determine the areas most likely to flood are outdated, although FEMA is in the process of updating them. The new maps rely on more up-to-date hydrological data, elevation data and land-use information. Not surprisingly, the newer maps show that more areas are at risk from flooding. But even these updated maps fail to incorporate climate-related impacts like sea-level rise or more intense storms, which would expand the extent of the flood-prone area even further.
  • Treatment of levees: Problems have existed, and persist, with how the National Flood Insurance Program treats properties behind levees. Essentially, if a levee is certified to provide protection against a 100-year flood, then properties behind the levee can purchase flood insurance at a lower price — or not purchase it at all. This has created a perverse incentive to build levees, which convey a false sense of security to property owners. Also, there's the question of whether a levee built to withstand a 100-year flood is adequate, given that 100-year floods have an annoying way of occurring more frequently than once every hundred years, and that's probably going to get worse as the climate warms.

Given these shortcomings, it's not surprising that the program will be between $25 billion and $30 billion in debt once all claims from Hurricane Sandy are paid out. It's a program that is almost designed to fail.

Reforms have been made. Just last year, the Biggert-Waters Flood Insurance Reform Act begins to address some of the problems described above, but a lot more needs to be done. Those common sense reforms are getting a lot of push-back as property owners find out that they will pay higher premiums that more accurately reflect their flood risk.

Americans should ask, "What is the purpose of the National Flood Insurance Program?"

The way the program has evolved, its purpose seems to have less to do with fixing problems associated with flooding, and more to do with prolonging those problems.

The program's purpose should be to prepare the United States for a future where flooding is going to be more frequent and severe. It should provide a social safety net for flood victims. It should be there to help people get their lives back together and to perhaps relocate to a safer location, outside the area where floods are most likely. It should be guiding the nation to a place where Americans are less at risk, particularly as the climate warms.

But so far, it has failed to deliver.

This article was adapted from the blog post What is the Purpose of the National Flood Insurance Program?, which will appear as the first installment of a series on NRDC's blog Switchboard. The views expressed are those of the author and do not necessarily reflect the views of the publisher. This article was originally published on Live Science.