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FEMA Flood Insurance May Be in for Climate Change Revamp

More frequent flooding exposes taxpayers to bigger relief payouts

As the federal government continues its disaster relief efforts after Hurricane Matthew and catastrophic flooding in Louisiana and other states, lawmakers and the Obama administration are considering how to limit the government’s liability for increasingly severe natural disasters — and the solutions could include designating more places as flood-prone and encouraging residents to move out of harm’s way.

At issue: The effects of climate change — more frequent flooding from torrential rains, hurricanes and other phenomena — are straining the federal flood insurance program, exposing U.S. taxpayers to a potentially growing price tag of flood relief payouts.

In the past five years, the National Flood Insurance Program, operated by the Federal Emergency Management Agency (FEMA), has taken in between $3.2 billion and $3.5 billion in premiums from its policyholders, and in most years that’s more than enough to cover claims. In fiscal 2014, for example, it paid out about $372 million for claims, and its 2015 payout was approximately $839 million.

The problem arises in years with particularly powerful storms. In fiscal 2013, the agency paid out $8.2 billion mostly for damage resulting from Superstorm Sandy — well above the approximate $3.5 billion the NFIP acquired by premiums that year and enough to swamp the years in which premiums exceeded claims.

“The issues associated with adapting to climate change and making our country more resilient keep getting louder and louder,” said Brian Deese, a White House senior advisor on climate, during an event at Columbia University on Tuesday. “We’ve seen that just this weekend … and we know that the frequency and severity of natural disasters like hurricanes and droughts are increasing rapidly, and we need to deal with their impacts even if we succeed on the mitigation front.”

[Louisiana Flooding Makes Case for Changes to Insurance Program]

The flood insurance program is at the center of the climate change storm. And with the authorization of the program set to expire on Sept. 30, 2017, flood insurance could become a hot-button legislative issue next year.

“We are going to need to fully embed climate resilience in the way our federal agencies operate. We need to move away from this idea that you pay for rebuilding after the disaster strikes and move toward awarding resiliency efforts before the storm gets there,” Deese said. “We are going to need to have very tough conversations about things like the federal Flood Insurance Program and start to recognize what major insurance companies are recognizing, which is the 100-year flood standard is less useful when 100-year floods are occurring every five years.”

While Deese didn’t say so directly, those tough choices could include some politically risky measures, such as redrawing the boundaries of flood zones, which could require more property owners to purchase flood insurance in order to qualify for mortgages.

Deese added that the federal government needs to look at “practices that expose the federal budget sheet and taxpayers to big, lingering liabilities.”

In a 2015 report, the Government Accountability Office came to the same conclusion: Losses generated by the program, as well as the potential for future losses, “have created substantial financial exposure for the federal government.” The flood program has been on GAO’s High Risk List since 2006, and the program owes $23 billion to the U.S. Treasury, according to a June report.

In a separate GAO report, issued in March, the agency said FEMA must do a better job of collecting information that would ensure that flood insurance premiums align with changes in flood risk — especially as those risks grow in areas where they historically occurred less frequently.

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