The National Flood Insurance Program (NFIP) is managed by the Federal Emergency Management Agency (FEMA), and is delivered to the public by a network of more than 50 insurance companies and NFIP Direct. The NFIP provides flood insurance to property owners, renters, and businesses, and having this coverage helps them recover faster when floodwaters recede. The NFIP works with communities required to adopt and enforce floodplain management regulations that help mitigate flooding effects. Flood insurance is available to anyone living in one of the 23,000 participating NFIP communities. Homes and businesses in high-risk flood areas with mortgages from government-backed lenders are required to have flood insurance.
And while the NFIP has been extended 25 times since September of 2017, this latest extension is set to expire on September 30, 2023.
The U.S. Senate Committee On Banking, Housing, And Urban Affairs held a recent hearing examining the impending NFIP expiration titled, “Reauthorization of the National Flood Insurance Program: Improving Community Resilience.” Led by Senate Banking Committee Chairman Sherrod Brown and Ranking Member Tim Scott, the panel of witnesses testifying featured Dr. Carolyn Kousky, Associate VP for Economics and Policy for the Environmental Defense Fund; Roy Wright, President and CEO of the Insurance Institute for Business & Home Safety (IBHS); and Patty Hernandez, Executive Director of Headwaters Economics.
“Flooding is devastating to families, homes, businesses, and communities. And it is only getting worse. These disasters also often fall hardest on low-income families and communities that have fewer resources to prepare for and respond to them. We will hear from one of our witnesses about the particular challenges faced by rural communities,” said Sen. Brown. “We need to help our families and communities to adapt and become more resilient both to the flooding we face now, and to the increases we know are coming in the next several decades. And whenever possible, we want to help communities avoid extreme flooding altogether, through pre-disaster flood mitigation. The NFIP is critical to that effort. It provides nearly $1.3 trillion in coverage to over 4.7 million homes and businesses in over 22,000 communities.”
Ranking Member Scott pressed for reauthorization of the NFIP, stressing the importance of the Plan to certain pockets of the nation, including Louisiana, South Carolina, and Florida, three states that represent a disproportionate share of the premiums that flow into the NFIP.
“Without an actuarially sound insurance program—and that's the challenge of premium insufficiency, is it's not actuarially sound because we have not understood the risk as it is, as opposed to the way that we think it should be—this program will never be financially solid. Without better mitigation and mapping costs for the insurance side of the program will continue to grow,” added Scott in his push for an extension to the NFIP. “That is why a comprehensive reform to the NFIP is essential, and doing so is the only way to ensure that flood insurance can remain affordable, accessible, and most importantly, helpful to policyholders when they need it the most. Let me just finish on that one thought there. We look at the FEMA disaster recovery, I think the maximum amount is around $39,000 that people are able to be eligible for, whether you have flood insurance or not. We have to figure out how to make sure that Americans who need the coverage have the coverage, which I believe will reduce the burden that we're putting on the NFIP. We have to understand the risk as it is, and once again, not as we wish it was.”
As Associate VP for Economics and Policy at Environmental Defense Fund, Dr. Kousky’s research examines multiple aspects of climate risk management and policy approaches for increasing resilience. Dr. Kousky has worked with many communities on resilience strategies and developing inclusive models for insurance and disaster recovery.
“Disaster loans are often a first-line of defense provided to those impacted by disaster, but for lower-income households, additional debt is more likely to make their financial situation more precarious and limited repayment ability will mean many lower-income households will be completely locked out of access to credit altogether,” said Dr. Kousky during her testimony to the Committee. “Federal disaster aid is too limited or too delayed or creates unnecessary burdens for households. With limited other options, insurance plays a critical role in getting households financial resources they need to rebuild their homes and replace damaged possessions. This is why insurance is a necessary component of securing financial resilience to disasters.”
In his role as President and CEO of the IBHS, Wright is a disaster safety expert, and for two decades, has served in roles that put him on the ground in the immediate aftermath of weather-driven and climate-related disasters, walking through damaged homes with survivors, and leading the charge for stronger construction standards, enhanced mitigation efforts, and better building codes. A former Federal Emergency Management Agency (FEMA) official, Wright joined IBHS in 2018 with experience in property insurance, risk management, mitigation, climate adaptation, and resilience planning.
“Insurance is founded on the principle that price is driven by risk—whether it is due to the higher replacement cost of the structure, the escalated value of the home, or a more precise understanding of the flood risk on a given parcel. Rates must be grounded in sound actuarial practices,” noted Wright in his testimony. “For some households, this means reductions in the price of flood insurance. For others, those who live in high-risk areas, policyholders are seeing rising prices that reflect that risk. In a time when so many point to the effects of climate change and its growing effect on severe weather’s impact on our homes, we cannot say that the flood risk is growing and then expect the price of that risk to be cheaper. That does not compute.”
Hernandez serves as Co-Founder and Executive Director of Headwaters Economics, sharing her 18 years of experience in economic development research, community assistance, technology solutions, and nonprofit leadership. She has led Headwaters Economics’ development of highly regarded interactive data tools—such as Neighborhoods at Risk and Wildfire Risk to Communities—that help communities adapt to climate change. In 2021, she also helped launch a new community assistance program: FloodWise Communities.
In her testimony, Hernandez explained the importance of the NFIP and aid to rural pockets of the country.
“Federal support for local government capacity and economic diversification would dramatically improve the ability of rural communities to access funds,” noted Hernandez. “For example, federal programs could leverage nonfederal partnerships to scale up technical assistance for grant writing, project scoping and plan development, and coordination among stakeholders. Funding regional projects that leverage urban-rural partnerships can also benefit low-capacity communities. Investing in regional institutions and organizations that can help coordinate resources and prioritize projects may also be necessary. Finally, federal funding programs can prioritize projects that result in economic diversification in order to help communities generate predictable local revenue needed for disaster mitigation.”
Click here for a full recap of the Senate Banking Committee’s “Reauthorization of the National Flood Insurance Program: Improving Community Resilience” hearing.