Extreme Weather Impacts the National Flood Insurance Program

Hurricanes and floods are nothing new in the United States.  In the last decade, however, this country has seen a significant increase in these types of extreme weather events.  In response to the financial strain they have put on the National Flood Insurance Program (NFIP), Congress passed the Biggert-Waters Insurance Reform Act of 2012 (BW-12).

The NFIP, operated by the Federal Emergency Management Agency (FEMA), offers insurance for individual businesses and homeowners in flood prone areas. Congress created this program in 1968 in response to the financial chaos caused by Hurricane Betsy in 1965. This storm, which devastated the Gulf Coast, was the first billion-dollar natural disaster in U.S. history.

To calculate flood risk and the corresponding insurance rates for properties, the NFIP uses special maps that indicate flood zones.  Many of these flood insurance rate maps, however, have not been updated in decades and do not reflect the current flood risk associated with our changing environment.  As a result, many policyholders have been paying below market rates.

The Biggert-Waters Insurance Reform Act re-authorizes the NFIP for five years, but requires a number of changes.  These include, the gradual phasing out of subsidized policies and moving the program toward risk-based rates as new flood insurance rate maps become available.  Subsidized policyholders will see a rate increase of 25% per year until their premiums reflect the actual risk of their location. Non-primary residences, non-residential properties, and repetitive loss properties will be among the first to see these changes.

BW-12 was signed into law a few months before Super-storm Sandy devastated coastal communities throughout the northeast.  Many people whose homes were damaged or destroyed by Sandy’s record storm surge are now beginning to feel the effects of this new policy.