National Flood Insurance Program likely to be headache for next president

Bordering Long Island and Queens, the Rockaways is a part of New York City that is all too familiar with flooding. In 2012, coastal flooding caused by Hurricane Sandy decimated the area, leaving community organizations like the Rockaway Initiative for Sustainability and Equity to help organize and rebuild while advocating for residents.

In addition to the frequent threat of waterlogged basements, dangerous mold and toxic sludge, many people in the Rockaways are overwhelmed by the costs of insuring buildings against flooding, according to Jeanne DuPont, founder and executive director of RISE.

Even the nonprofit organization itself struggles to afford the $5,025 annual flood insurance bill on its 1920s-era headquarters on Rockaway Beach Boulevard which, like other properties in high-risk areas with government-backed mortgages, is required to have flood insurance. “I think in general, for low-income residents [in the Rockaways], most of them cannot afford to have the flood insurance in the first place,” she said.

If people don’t keep up with their flood insurance payments, they risk losing their mortgage and having to buy their own home from the bank – something few people have the liquid assets to be able to do. 

As sea levels rise and storms intensify due to climate change, more and more homeowners are dealing with flooding. In New York, some of the hardest hit are those living in the 1,146 communities covered by the Federal Emergency Management Agency’s National Flood Insurance Program – which extends from Essex County near Lake Champlain to Nassau County on Long Island.

The National Flood Insurance Program, which offers payouts for flood-related property damage to people in low-lying areas, was created in 1968 to compensate for the fact that many private insurers refused to offer flood protections because it cut into their profits more than other types of risk, like fire.

But the program has been burdened with escalating payouts. Hurricane Hugo in 1989 resulted in $375 million in claims, whereas Katrina in 2005 led to $17 billion and Hurricane Sandy in 2012 cost the program over $8 billion. Disasters like these have left the flood insurance program $20.5 billion in debt, and taxpayer money has been propping up the program’s overruns, driving up the cost for both the government and many policyholders in flood-prone areas. Democrats and Republicans butt heads on many issues, but this is a rare one where policymakers agree reforms are needed. As the 2024 presidential election looms and a Dec, 20 deadline for Congress to renew the flood insurance program approaches, the question is: What form will those reforms take, and how drastic will they be? 

In 2023, most flood insurance program claims were made in southern New York counties like Nassau, Westchester and Queens. Residents of these counties are at risk of losing affordable flood insurance coverage no matter whether Vice President Kamala Harris or former president Donald Trump becomes the next president. But there are a range of ideas about how to manage flood insurance reform, some more drastic than others.

“There’s a lot of cascading effects that are the result of this program being in place so long that would cause a lot of damage to a lot of communities if it just went away,” said Jeffrey Schlegelmilch, director of the National Center for Disaster Preparedness at Columbia University.

Flood insurance premiums under the program are currently determined by a pricing system called Risk Rating 2.0, which FEMA began rolling out in 2021. This is the biggest change to the flood insurance program since its creation. Premiums were originally largely determined based on what flood zone a property was located in, such as the 100-year flood plain. The new system instead bases premiums at the individual property level, considering things like the type and frequency of flooding it faces, its distance from water, and prior claims. This change has benefited a lot of homeowners who saw their premiums decrease under the new system, but many have also seen the cost of their premiums shoot up and can’t afford to keep their policies.

Harris acknowledged the reality of rising insurance costs due to climate change during the climate change section of the presidential debate in September. 

“You ask anyone who lives in a state who has experienced these extreme weather occurrences, who now is either being denied home insurance or is being jacked up,” Harris said. “You ask anybody who has been the victim of what that means in terms of losing their home, having nowhere to go. We know that we can actually deal with this issue.”

But Harris only highlighted the problem without committing to how she would deal with it as president.

Early in his administration, former President Donald Trump considered making serious changes to the flood insurance program, but he backed off and said he would wait until after the election.

Limiting the coverage and affordability of the program is political dynamite because losing this insurance decimates the value of a home, and homeowners tend to be people who vote, Shlegelmilch said. 

In 2017, officials in the Trump administration proposed changes to the program, such as refusing insurance for new buildings erected in flood zones, dropping coverage for properties that have made multiple flood claims, and requiring homeowners to tell prospective buyers about a property’s flood risk. Those changes went nowhere, but in 2022, the Biden administration made an almost identical proposal to Congress.

This is a notable policy overlap for two administrations that have typically had polar opposite policies. This is especially true for climate change-related issues, which President Joe Biden has made a signature focus of his administration and Trump has called a hoax.

However, Project 2025, the conservative policy blueprint developed by Trump allies, goes further, suggesting that the program be eradicated. “The NFIP should be wound down and replaced with private insurance starting with the least risky areas currently identified by the program,” the document says.

Schlegelmilch says privatizing the program and allowing the free market to take over would essentially remove the need for flood insurance for properties and neighborhoods that are especially flood prone, since insurers’ aversion to paying flood claims is what caused the creation of the program over 50 years ago.

“But what it would also mean is that many people would find themselves in homes that are no longer really worth much, or that they can't sell,” Schlegelmilch said. “It would affect their ability to sell their home, to pass it down, and for many people it's their largest source of wealth. It’s how you create generational wealth.”

Most policyholders under the program are those who need it the most. Many policyholders have dropped their flood insurance for reasons including affordability, according to a 2023 report from the U.S. Government Accountability Office.

The loss of those homeowners from the program has concentrated the existing program policies in the most high-risk areas, said Roy Wright, the program’s former chief executive. “What they really have is a greater and greater concentration of risk, which is to say those at greater risk that have the requirement to buy the flood insurance are doing so.” 

Some experts say expanding the market for private flood insurance would be beneficial because it would give consumers more options. Private flood insurance would have more space to grow in areas with a mid-level flood risk, which is less risky for insurers. Part of the reason the private market is still so small is because, in addition to the high costs of water damage, flooding is still hard to predict. Insurers don’t have much reliable and consistent data to base their pricing on.

“You might know there will be a rainstorm, but not all rainstorms result in people’s basements getting flooded or the roads flooding,” said Noreen Clancy, a senior policy researcher at RAND.

Experts say the program is unlikely to go away under any administration. Wright, who served under both the Obama and Trump administrations, said there wasn’t a fundamental difference in the program under Democrat versus Republican leadership. Both red and blue states have areas with high flood risk. Flooding is an issue that cuts across party lines.

“Politicians usually want to make the program faster and cheaper for the people who have to pay for it,” he said. “They don’t want higher hurdles to be put in place.”

But Yanjun Liao, an economist and fellow at the nonprofit research institute Resources for the Future, said that with climate change intensifying, the cost of the program is going to continue to rise. “The tension between generally keeping the premiums affordable and pricing for the risk – that tension is not going to go away,” she said. “It’s just basic economics.”

At the end of the day, it is Congress that ultimately has the power to make significant changes to the program. “The role that the administration plays is in implementing the program within the language that Congress uses to authorize it, but it really would take an act of Congress to fundamentally change,” Schlegelmilch explained.

Congress has passed several short-term reauthorizations of the program since the last long-term reauthorization in 2017. Biden signed the last one on September 26, and it expires after the election on December 20. Although there have been short lapses in renewing the program in the past, which prevented the NFIP from selling new policies and borrowing funds, experts say they don’t expect any big changes soon.

“I think it’s very likely to be renewed,” said Liao. “While a lot of Congresspeople are concerned about the cost of the premiums of the program, not having that coverage is even worse,” said Liao.

Schlegelmilch agreed. 

“At the end of the day, these are voters living in their home, right?” he stated. “And even though it's after the election, this is a bipartisan vulnerability which is why everyone complains about the program.”