FEMA’s National Flood Insurance Program (NFIP) needs more than the many temporary Congressional authorizations that have kept it afloat, according to climate insurance risk analysts.
On December 21, President Biden signed Congressional legislation reauthorizing NFIP through March 14. Biden signed the previous stopgap measure on September 26. Since 2017, Congress has passed 32 short-term extensions of the NFIP, according to the Congressional Research Service, a U.S. Congressional agency.
Jessica Scranton
“I remain optimistic that leadership emerges, and that if you really care about government efficiency and avoiding government waste, you would want to reform NFIP, and you wouldn’t want to get rid of it. You’d want to make it function,” said Susan Crawford, senior fellow in the Sustainability, Climate, and Geopolitics Program at the Carnegie Endowment for International Peace, speaking in a January 10 briefing hosted by the Global Strategic Communications Council, a global group addressing climate, energy and nature issues.
Will NFIP end?
Project 2025, a set of policy proposals for the federal government published by The Heritage Foundation, a conservative research institute, supports ending the NFIP, according to Scientific American.
“That’s just simply not realistic. There’s no sense in which the private market would step into that void to provide flood insurance in an affordable and broad-based available manner,” said Benjamin Keys, professor of real estate and finance in the Wharton School at the University of Pennsylvania, speaking about the proposal in the briefing. “The reforms need to go in the other direction, which is to strengthen the program, to make it more robust and to give it more permanent standing, so it can have much longer term planning, rather than always having to try to get reauthorizations.”
Solutions for NFIP’s woes
Any changes to the NFIP would have to come from outside the program, according to David Burt, founder and CEO of DeltaTerra Capital, a climate risk intelligence firm serving institutional investors, who also spoke in the briefing.
Currently, FEMA only requires property owners in a Special Flood Hazard Area to buy NFIP insurance. Florida, however, has made it mandatory for those buying insurance from the state’s insurer of last resort, the Citizens Property Insurance Corporation, to have NFIP or other flood coverage.
“The changes that are likely to come are mostly around the mandatory purchase requirement,” Burt said. In 2021, the General Accounting Office recommended to Congress that a new model should be created for FEMA to determine flood hazard areas, but that has not yet been implemented. FEMA did launch a new pricing model called Risk Rating 2.0 in April 2023.
Regulators need more data and better data from insurers to be more accurate about flooding or climate-related trouble areas, stated Keys. From March to June 2024, the National Association of Insurance Commissioners, the association of state insurance regulators, collected property and casualty market intelligence data from insurers, but has not yet issued its report.
“The tension is that there’s no interest from the insurance community in sharing their data, in sharing their proprietary models, sitting at the table and saying, ‘How do we solve this problem in a collaborative way?’ They’ve put up a lot of barriers to data collection,” Keys said. “They haven’t wanted to collaborate with the U.S. Treasury’s Federal Insurance Office, and they’ve benefited from a very fragmented regulatory environment. In essence, there’s no dashboard. There’s no radar screen where you can go and see the insurance trouble spots at the moment. Data isn’t really collected in any systematic way. It would be great to get the insurance industry to the table, to get much more involved in sharing data and better diagnosing the problems.”
Burt suggested that NFIP’s issues could also be addressed by raising mandatory coverage requirements above its current $250,000 cap on coverage provided for residential buildings.
