Troubled Waters: The National Flood Insurance Program in Historical Perspective

The National Flood Insurance Program (NFIP)—an effort to provide government-backed insurance protection to Americans living in flood-prone areas—was championed by Lyndon B. Johnson and established by Congress through the passage of the National Flood Insurance Act of 1968.¹ Private flood insurers had retreated from the market following the great 1927 Mississippi River flood; serious attempts to create a flood insurance program only began again in the 1950s, with actions by both the Truman and Eisenhower administrations that eventually stalled.² The impetus to pass the NFIP finally came in reaction to the escalating costs of ad hoc post-disaster relief legislation, triggered initially by the Alaska earthquake of 1964, and followed by severe flooding and damage from Hurricane Betsy in 1965, America’s first billion-dollar hurricane.³

The NFIP was implemented in the midst of a remarkable population shift to hurricane-vulnerable states and coastal counties. For example, since 1950 Florida’s astounding 579 percent growth rate was the highest in the nation, raising it from twentieth to fourth in population. Texas grew at a rate of 226 percent, moving its population rank to second in the nation. Other hurricane-hazard states like Delaware, Georgia, Maryland, New Hampshire, and Virginia were among the fastest-growing states in the nation.⁴ As of 2010, 39 percent of Americans lived in coastal shoreline counties, a remarkable increase of almost 40 percent since 1970—with population densities six times greater in shoreline counties than inland counties.⁵

While the concentration of population in coastal regions has created wealth, it has also placed vastly more people and more property in previously undeveloped floodplains and hurricane zones and into harm’s way. This trend in development is a clue toward understanding why the United States has moved into a “new normal” of frequent, billion-dollar hurricanes. Eight of the ten costliest hurricanes in United States history have hit since 2004, at a cost of over $200 billion. An additional $100 billion has been lost to riverine and flash flooding since 2003.⁶ Insured flood losses in the United States in 2012 reached $58 billion.⁷ Climate change and sea-level rise today portend longer and more destructive hurricane seasons in the years to come, an ominous forecast given that the number of shoreline residents in the United States is expected to rise another 8 percent by 2020.⁸

The NFIP has grown rapidly in the past forty years; as of December 2012 it had sold more than 5.5 million policies in twenty thousand communities and provided more than $1.28 trillion in coverage. Insurance tends to be concentrated in coastal states, with Florida and Texas alone comprising nearly 40 percent of the entire program (in number of policies, premiums, and coverage). Looking ahead, a 2013 study for the Federal Emergency Management Agency (FEMA) predicts 80 percent growth in NFIP policies written by the year 2100; the study speculates that “30% of the estimated increase in policies is due to population growth and approximately 70% is due to climate change.”⁹

NFIP found itself $18 billion in debt in the aftermath of Hurricane Katrina. To meet its obligations, the NFIP’s borrowing authority had to be increased from $1.5 to $20.775 billion, where it stood pre–Hurricane Sandy in 2012. After Hurricane Sandy, Congress increased NFIP’s borrowing authority again, to over $30 billion. To date, the program has borrowed nearly $27 billion from the U.S. Treasury to meet its claims obligations in the aftermath of the 2004, 2005, 2008, and 2012 hurricane seasons.¹⁰

Since 2002, FEMA (the agency overseeing the NFIP) has taken on new and complex roles within the enormous infrastructure of the Department of Homeland Security. FEMA faced further reforms after Hurricane Katrina, while the NFIP suffered the political uncertainty of stopgap reauthorizations. Saddled with “repetitive loss properties,” struggling to modernize its floodplain maps, and still unable to enforce comprehensive building code and floodplain management reforms that were central to the original bill, the program has seen flood losses increase...