The Working Waterfront

Federal flood insurance evolved, but not for the best

Congress has taken a piecemeal approach to a worsening problem

Steve Whitney
Posted 2021-04-14
Last Modified 2021-04-14
Camden King Tide
The King Tide in Camden.

In the February/March issue of The Working Waterfront, Peter Neill of the World Ocean Observatory suggested using flood insurance premiums to reduce risk instead of repeatedly rebuilding damaged structures (“Rethinking insurance as investment, not pay-out”).

The concept of diverting insurance premiums to reduce loss instead of replacing loss has merit. Reducing flood hazard risks has been a goal and responsibility of federal, state, and local governments for several decades. The concept needs to be evaluated by looking at the detailed history and lessons of flood insurance.

For more than 50 years flood insurance has been provided through a federal program known as the National Flood Insurance Program, created by the National Flood Insurance Act of 1968. This law was adopted following increased losses from hurricane damage in Gulf states and the decision by private insurance companies to abandon the flood insurance market, leaving only a few private insurers willing to cover increasing risks.

The design trend has been for bigger, stronger, and more costly solutions to keep up with greater flooding…

The law was meant to provide federally subsidized flood insurance for structures and personal property in communities that adopt federally approved minimal flood hazard regulations and reduce flood damage by constricting development through state and local government regulation of floodplains.

The program has been amended several times since then. The Flood Hazard Protection Act of 1973 made purchase of flood insurance mandatory in certain special flood areas. In 1982 the program was amended by the Coastal Barrier Resources Act identifying areas on barrier islands to be ineligible for flood insurance.

The National Flood Insurance Reform Act of 1994 created mitigation insurance and a Flood Mitigation Assistance Program for states and communities. The next round of that program’s funding announced in the fall of 2020 has made available $200 million for mitigation.

In 2004 the Flood Insurance Reform Act was adopted to reduce repetitive flood insurance payments. The act noted that about 48,000 homes had experienced two or more losses within a 10-year period. The act preamble noted that 10,000 homes had experienced losses greater than their assessed value.

The Biggert-Waters Flood Insurance Reform Act of 2012 amended the program to raise insurance premiums to reflect the true risk of living in flood areas. As of 2014 the costs exceed premiums by $20 billion. This program debt is the ultimate responsibility of Congress and thus the U.S. taxpayer, not the insurance pool.

Following hurricanes Katrina and Sandy, Congress passed the Homeowners Flood Insurance Affordability Act of 2013 which amended some of the previous premium adjustments by reducing premiums for some properties.

Other federal government programs have been involved with floodplain and coastal hazard mitigation for decades. Congress continues to appropriate funds at the recommendation of the U.S. Army Corps of Engineers to build levees along many of the major rivers in the U.S. and has to date spent $7.9 trillion on beach nourishments (most notably $1.7 trillion on 262 miles of beaches in Florida since 1935 and $1.4 trillion on 95 miles of beaches in New Jersey since 1936).

From 1998 to 2014 the Federal Emergency Management Agency (FEMA) spent $48.6 billion appropriated by Congress to replace/repair public buildings, public utilities, roads, bridges, and flood control structures. Probably the best-known flood control system is the one designed to protect New Orleans.

The federal mitigation programs are spread across many agencies each responsible to Congress under separate laws. Most mitigation projects—whether a beach fill, a levee, or a sea wall—have a short design life of a few years to a few decades. They have to be maintained, repetitively repaired, or replaced.

The design trend has been for bigger, stronger, and more costly solutions to keep up with greater flooding and rising sea levels.

Congress has tried to address development in floodplains by balancing the competing interests of people who want to live in flood hazard areas and the shared public costs to accommodate them. The piecemeal federal solutions have created numerous large independent agencies addressing specific symptoms without defining and addressing the true common purpose and public costs.

More people now live in flood hazard areas than before federal flood insurance. Public costs of accommodation have increased with more development. Public solutions involve numerous special interest groups, including residents and business owners who want to stay in the short term in these hazardous areas, along with coastal engineers, geologists, environmental and taxpayer groups who understand that erosion, flooding, and the sea will eventually win.

The public debate about flood insurance, hazard mitigation, continued loss of property, increasing flood risks, and rising accommodation costs is complex and difficult.

We are far from solving this “investment” dilemma.

Steve Whitney is a retired geologist who lives on Little Deer Isle.