Flood Money : The Challenge of U.S. Flood Insurance Reform in a Warming World

Congress’ reforms of the National Flood Insurance Program (NFIP) in 2014 continued its misguided approach to flood insurance policy, ignoring the increased risks of floods posed by climate change and giving generous subsidies to flood-prone properties. The Article analyzes the recent reforms against a backdrop of the NFIP’s history, impacts, and structure, and makes recommendations for steps Congress should take when it revisits the program in 2017. The NFIP has encouraged retention of older flood-prone properties and building in flood-prone areas, which makes little sense given the risks we face. The NFIP, deeply in debt to the Treasury Department, rests in part on an approach to flood risk where risks are pooled but the price individuals pay for flood insurance often is not based on actual flood risk. This solidaristic approach to flood risk, where government subsidizes hundreds of thousands of flood insurance policies, is not based on need or any other credible policy principle. Further, the justifications for continuing the subsidies are weak when compared to other contexts where the federal government has been involved in solidaristic approaches to insurance such as the Affordable Care Act, unemployment insurance, and promoting insurance in urban areas. Congress should gradually remove flood insurance subsidies, fund accurate maps, and allow rates to be based on risk. Because flood insurance is mandatory for mortgageholders in floodprone areas, and risk-based rates may be overly harsh for low-income homeowners, a limited means-tested program should be passed which would allow these homeowners to receive insurance at reduced rates