FEMA Wants to End Flood Insurance for the Nation’s Riskiest Properties

With the federal flood insurance program already about $20 billion in debt and continuing to bleed money, the Federal Emergency Management Agency wants to stop insuring properties in high-risk flood zones that they’ve already had to pay to fix over and over.

But the idea of leaving some property owners uninsured the next time the waters rise is running into opposition from some Senate Democrats, as well as the nation’s counties. 

Sen. Robert Menendez, of New Jersey, said the proposal is similar to one put forward by the Trump administration that Democrats have rejected in the past. It “will lead to more people being uninsured and unprotected against more frequent storms,” Menendez said at a Senate Banking Committee hearing last week about changes FEMA is proposing for the program. 

A better way to reduce how much the program has to pay is to mitigate the risk from flooding events, he said at a separate hearing on FEMA’s recommendations last month.

“If we know right now which homes are at risk, we shouldn't wait until a flood to step in and help,” said Menendez, who is sponsoring a separate bipartisan proposal to reauthorize the flood insurance program. Its current authorization expires on Dec. 16. “For every dollar the federal government spends on mitigation on the front end, it saves $6 on the back end,” he added.

FEMA’s proposal to dump the high risk properties is part of 17 recommendations it has put forward to try to get the National Flood Insurance Program on sounder financial footing.

The program was established in 1968 to provide insurance to help home and business owners so they would be better positioned to rebuild after floods damaged their properties.

With Congress keeping premiums lower than market rates—essentially subsidizing property owners’ risks—the program has accumulated about $20.5 billion in debt because it has had to borrow money from the U.S. Treasury 11 out of the last 22 years to make up for shortfalls. 

That’s even after Congress canceled $16 billion in debt during 2017, around the time a series of major hurricanes hit the U.S.

FEMA now has to pay about $400 million a year in interest, David Maurstad, FEMA’s deputy associate administrator for federal insurance and mitigation, told the banking committee. The agency estimates it will have to pay another $4.2 billion in interest over the next ten years. Part of the program’s financial difficulties are rooted in the heavy costs that resulted from Hurricane Katrina, the storm that devastated New Orleans in 2005.

“As currently structured, the program is unable to pay this debt back in full,” Maurstad told the committee.

To give the program just a 75% chance of at least being able to break even in ten years, FEMA is asking Congress to forgive its debt again, as well as reworking the program. Without doing so, there is only a 5% chance of the program staying financially above water, Maurstad said.

In addition to the interest payments it is saddled with, FEMA said the program’s financial problems stem from the fact that private insurers can choose who to insure and shy away from the riskiest properties, something FEMA does not do. 

“FEMA has never denied flood insurance coverage to any eligible structure,” the agency wrote in its report to Congress.

Since 1978, Maurstad told the committee, FEMA has had to pay for flooding damages two or more times for nearly 100,000 structures. And the agency has had to pay for damages 10 or more times at 1,000 properties. As of December, FEMA said in its report, it has paid $35.1 billion in claims to properties with two or more losses—nearly half of the total of $73.4 billion it has paid on all claims.

And, Maurstad said, “if a property flooded before, there's a high likelihood that it will flood again.”

With this in mind, FEMA says it wants Congress to let it no longer insure what would be called “excessive loss properties,” in which the program has had to pay flooding damages exceeding $10,000 four times. Property owners, though, could still be insured if steps are taken to reduce the risk of flood damages at their properties.

It would cost the federal government $18 billion to $20 billion to mitigate flood risks at all the “excessive loss properties,” Maurstad told Democratic committee chairman, Sen. Sherrod Brown of Ohio.

In addition, under the FEMA proposals, NFIP would no longer insure new construction in areas at the highest risk of flooding, with the hopes that if people do choose to build in these areas, private insurance companies will move in to offer policies.

FEMA is recommending a number of other changes as well, including restricting how much it can borrow from the Treasury. Should it need more money after a major event like Hurricane Katrina or the 2017 storms, it would have to ask Congress for emergency funding. 

To give people more information so they might avoid moving into flood-prone areas, FEMA also wants to call on states to set disclosure requirements for those selling or renting properties. Buyers or renters would need to be informed when homes are at high risk of flooding. 

The agency also plans to improve its mapping to show what areas are likely to flood. 

In addition, FEMA is proposing to base the premiums it charges to allow more low-income people to buy flood insurance. 

Only 35% of property owners in flood-prone areas are insured, Maurstad said. “It's very easy to see that many low-to-moderate income policyholders in the high-risk area don't have the protection that they need. We need to close the insurance gap,” he said.

The idea of no longer insuring properties repeatedly damaged by flooding has the support of the banking committee’s top Republican, Sen. Pat Toomey of Pennsylvania.

“This is a good policy and it's worthy of very serious consideration,” he said at last week’s hearing. 

“We should not provide flood insurance subsidies that encourage people to live in flood-prone areas. That might seem like common sense, but it's what we do now,” he said. “It's unfair and senseless to force taxpayers to continuously bail out properties in these risky areas,” he added.

Toomey also called the program “broken” and said it would be “wildly irresponsible” to cancel more of its debt to the Treasury without a significant overhaul.

The National Association of Counties is opposed to no longer insuring people in flood-prone areas, the group’s spokesman Brian Namey told Route Fifty. 

“Removing access to flood insurance for these communities would leave many families and businesses unable to recover from the next disaster,” he wrote in an email.

NACo has instead called for increasing funding to prevent flood damage through programs like FEMA’s Building Resilient Infrastructure and Communities program.

“Counties recognize the necessity to limit new construction in high flood areas, but without assistance from our federal partners, efforts to relocate existing homes and businesses in these areas would not be possible,” Namey added.

Brown, while silent on FEMA’s proposal, stressed at last week’s hearing the need for the federal government to spend more on flood mitigation, calling $3.5 billion in grants contained in the bipartisan Infrastructure Investment and Jobs Act just a “down payment.”

Jana Henderson, board secretary of the Association of State Floodplain Managers, pointed to other federal programs that lose money but are treated differently. 

The federal crop insurance program, for example, costs taxpayers about $8 billion a year, Henderson, who is the office of mitigation director and state hazard mitigation officer for the state of Mississippi, said in written testimony to Congress.

But, unlike the flood program, the Agriculture Department is not required to pay crop insurance debts and interest. 

The floodplain managers recommend forgiving the flood insurance program’s debt or at least no longer requiring FEMA to pay interest. Henderson also said that if Congress wants to reduce costs, it should do more to reduce flooding and make people aware of flooding risks.