Facts about flood insurance

The National Flood Insurance Program (NFIP) owes $24.6 billion to the Treasury. Most of it covered claims from Hurricane Katrina in 2005, Superstorm Sandy in 2012, and floods in 2016, the program’s third most severe loss-year on record with losses exceeding $4 billion, according to the Federal Emergency Management Agency (FEMA), which manages it.

The NFIP was extended 17 times between 2008 and 2012 and lapsed four times in that period. A 2012 law extended the program to September.

The only source of flood insurance for most Americans, it will be in place for homeowners and businesses in Harvey’s path along the central Texas coast.

But Harvey-related claims covered under the program could push it deeper into the red and possibly toward its borrowing limit of just over $30 billion, said Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan budget watchdog in Washington, D.C.

Federal law requires that homes in flood-risk areas have flood insurance before a mortgage can be completed. The program is the only flood insurance available to the vast majority of Americans, although a small market for private flood insurance is sprouting in flood-prone states such as Florida.

Here is the article.  Note the Trump administration previously was pushing a plan to cut the insurance to pay for The Wall.  I do see a case for doing without a federal role for this insurance, but the benefits there come ex ante, not from yanking it away ex post.


"but the benefits there come ex ante, not from yanking it away ex post."

Well, the question is why do we have that state sponsored insurance set up in the first place. The fact that it is "not working" is not surprising.

We have it to encourage development in flood prone areas.

This, obviously, is a poor idea. But it is popular amongst homeowners in flood prone areas, who are a crucial electoral constituency, so it is not going anywhere.

Indeed. The poor use NFIP to build in floodplains. The rich self-insure and build in coastal areas sure to be flooded by global warming in the next 25 years. And the rest of us subsidize them (either through taxes or higher than usual home insurance).

The poor are the real estate developers?

Surely you can't be arguing it's the poor who created the real estate developers who take cheap land and sell it at much higher prices after paying workers as little as possible to build housing to sell or rent at a profit.

Examples of Ray's idea of housing for the poor can be seen in the last drone footage in this article:

BGR: Drones provide a depressing look at Hurricane Harvey’s devastation. http://google.com/newsstand/s/CBIwze-x7TU

The 5 minute video shows recently constructed and under construction housing in a Houston flood plain, obviously for people Ray considers poor.

Base not case mulp. Houston is an N=1 event, a once in 'a blue moon' event. The hurricane lingered longer, dropping rain, rather rare. In general, poor people are found near the river in the American south. Recall the CCR song 'Rolling down the River'. I rest (on) my case.

Is Houston a 'once in 500 yr' event, Ray, or a 'once in 500M yr event'?


I think builders like it even better. They have their profit and are gone before the flood.

To be fair, if someone is in the market for a house and it's covered by flood insurance though it's in a flood plain, I won't fault them for buying it. I do think moving forward, they need to let the price of these disaster insurances reflect market values and require homeowners to have them, since government will be cleaning up afterward anyway. (Please find me the politician who's going to say "no" to the flooded homeowners who didn't get flood insurance.) That will at least curb new development in disaster prone areas. I have a harder time telling this to people who bought their homes under the previous (though terrible) policy regime.

You might have that backwards. We have development in flood prone areas that doesn't want t cover it's own damages for floods. The claim was made that not having public insurance cover the claims resulted in various types of social bads and negative externalities so the government should cover things under the "general welfare" premiss of the Consitituion.

At least that is my hypothiesis that someone can think about testing.

The insurance program's exposure depends upon the participation rate; a lot of people probably did not buy the insurance, some may have gone out of their way to avoid it.

For example, in the New Orleans area, only 10% of the homes flooded by Hurricane Katrina had flood insurance.

Only 15% of property in Harris County have flood insurance. Of those, many will suffer less flood damage because their construction required mitigating flood damage by building higher. To meet the requirements of a plan to mitigate flood damage, Texas mandates building a foot above 99% highest flood level, instead of zoning. But that requires setting flood level risk. If flood level risks were not set, then no subsidized flood insurance, but no requirement to pay workers to build higher.

And if maps are redrawn, you must figure out on your own that you can now get flood insurance so the Federal government will help pay workers to rebuild, higher.

There's a fallacy that rich people are the primary beneficiaries of the federal flood insurance program. The Biggert-Waters Reform Act of 2012 (which would have ended federal subsidies for flood insurance over a period of years) would have imposed enormous cost on middle America since it's middle America that benefits most from the subsidies. Wealthy people don't have mortgages and don't have flood insurance: why would someone buy $250,000 of flood insurance (the maximum available) for a multi-million-dollar house? Indeed, price inflation for houses may be the "cure" for flood insurance. I'm sure Cowen appreciates the irony.

Nice points, but $250k can help repair a lot of damage. It's not like the house is complete destroyed after a flood, like it would be after a fire.

I buy the max on my home in the Florida Keys and it's elevated 12ft off the ground. You're correct that $250k buys a lot especially when you consider the property/lot is typically worth a lot more than the building...even for the rich.

I buy the max. Something is better than nothing. But I'm not in an at risk area. I'm just insuring against the 1000 year event, which doesn't really make sense, I know...

It was a thousand years event only in 1979 when Carter administered the reform of the program using data. Since, use of data has been opposed because paying workers to create the updated data kills jobs, plus the objective data will require paying workers more to build in too many places, and that kills jobs.

The only way to create jobs is to eliminate anyour Federal law that increases labor costs because paying workers costs too much, and higher costs kills jobs.

Benefits of flood control from a wall along the US Mexico border have not yet been quantified. Benefits of one running 860 miles down the middle of the Rio Grande are probably going to be minimal.

We call it insurance because we do not want to call it a subsidy or government payment program.

Agricultural price support programs were converted into agricultural crop insurance programs which always run at a deficit because they were designed to do so.

Whatever you do, don't call it regional welfare or welfare for farmers or transfer payments.

But, be glad that they are paying at least some part of the cost.

I agree with you 100%. The only question I have is whether this welfare was created because flood insurance is somehow impractical for insurance companies... Do we have the same problem with other natural disasters like hurricanes and earthquakes?

I think the issue is that many, many homes were already built and occupied in disaster prone areas (think: the outer banks in North Carolina) where the market price for actual insurance coverage was astronomically high, or much higher than these homeowners would want to buy even if it were available; thus there was no market for it, so government came in and in the process, also encouraged developers to continue building in disaster prone areas. Doh!

"...where the market price for actual insurance coverage was astronomically high,"

Or, in retrospect, was it correctly priced? And if it was overpriced, why don't the state insurance commissions allow more competitors in the market?

@FYI: private insurers stopped covering residential property for flooding in Florida after hurricanes in 1992, 2004 and 2004. They said state regulators required insurance prices that are too low to make the risk of doing business profitable. Those insurers still cover for wind damage, but for flooding the only option is the NFIP.

And don't forget: Social security is a welfare program disguised as a Ponzi scheme to make it palatable to the median voter.

Most people in earthquake areas do not have earthquake insurance.

The risks associated with writing large blocks of highly-correlated risks are extreme indeed. Our insurance companies, strong though they may be, do not find they are able to sell more earthquake insurance without taking risks that would endanger their ability to repay. Further expansion of earthquake insurance programs would require substantial commitments from international reinsurers, and that sort of commitment is expensive.

As such, most people simply don't purchase it.

"Democrats and Republicans alike love to make flood insurance as cheap as possible, but then they also like to complain that the program is deeply in debt and needs to get fixed. It is hard to do both of those things at the same time. As I like to joke, nobody in Congress ever got unelected by making flood insurance cheap."

"There are a lot of things that the flood insurance program (NFIP) does right now that hinder our efforts to help people live in a safer location.......First and foremost, the program needs to do more to help people live somewhere safer. Right now the way the program works is it places the highest priority post-flood on helping people rebuild. It will help them rebuild five times, 10 times, 20 times, 30 times. After two or three floods, you can assume there is a pattern developing. Rebuilding the next 20 or 30 times and expecting a different result is probably an unreasonable assumption, but that is what the flood insurance program does."


Coasean solution might be to offer a larger "insurance" payout if the person moves or rebuilds outside of a floodplain than for rebuilding in the same place.

Democrats required paying workers up front to rebuild in ways that prevented or mitigated future losses.

Republicans changed the law because Federal requirements to pay workers costs too much and kills jobs. After the floods, Republicans argue that paying workers to recover from the flooding costs too much and kills jobs, and this workers should not be paid to prevent them from buying in areas that everyone knows will flood but that can not be declared areas that will flood because not being able to sell something destroys wealth, so everything must be officially immune from flooding to cut the costs of paying workers so workers are paid more and can pay more for lower cost housing that will be destroyed within a decade 95% of the time.

Republicans promise a free lunch. Democrats are evil because they require everyone pay for lunch according to how much they are paid for fixing lunch.

The program should be abolished. As should mandatory automobile insurance.

Yep, not paying workers creates jobs.

I didn't know that the reason for government was to create jobs; I thought it was to establish a small, common set of regulations governing social interaction, thereby allowing people to explore their options, find or create work, and prosper. If the business of government is to make regulations that benefit only certain groups of companies and/or workers, then I want them to pass a law like mandatory insurance for something I like to do. That way, customers are forced to patronize my business and I can treat them like crap and they have to come back. Oh yeah, like government agencies, insurance companies, and now the medical field,

I don't see how taxpayer-subsidized flood insurance and mandatory automobile insurance compare. As I understand, the mandate for auto insurance is for liability coverage: so that if I cripple someone else, they're not forced to bear the financial burden because of my own impecuniosity. To the best of my knowledge, there's no requirement that drivers have collision insurance: I can legally drive without it, since if I wreck my car, I'm the only one who suffers.

Flood insurance is a different animal entirely. If my barrier-island house winds up beneath the waves, it is, and should be, my problem. The taxpayer derives no benefit from my living right on the beach, and shouldn't be expected to pay for my ignorance or neglect of basic geology.

They compare because both shift a person's responsibility onto another person or people, as you say the taxpayer. I do agree with you that flood insurance penalizes the taxpayer group while auto insurance penalizes everyone who owns a car. What makes mandatory car insurance wrong is that it operates under the same incorrect justification as seat belt laws or helmet laws, among others.

+1, this is a totally different thing. Federally subsidized flood insurance protects the mortgage industryand sellers in flood zones.

You mean people in the mortgage industry are so short-sighted and bad at their jobs that they can't decide if a place to build or finance is a bad risk.

New policy: Fed Flood Ins will pay off only until the next claim. After that it is up to private insurance. Problem solved?

No, problem not solved, just delayed. Ever thought of running for office. Eliminate the problem, and the cost, by eliminating the flood insurance program. I wonder how the central United States ever recovered from the great Mississippi flood without all of this government help? Humm, maybe they just did it and got on with their lives.

You mean the Federal Reserve can't purchase damaged assets at face value?

There is an unlimited pot of money available. A lender of last resort with no limit to the amounts available in case of an emergency.

They were buying 50 billion or so a month of bonds. This is a drop in the bucket.

Damaged assets don't mature...

" Note the Trump administration previously was pushing a plan to cut the insurance to pay for The Wall".

"Cut insurance"? Not really. More like "cut subsidies". Imagine if your home, auto or health insurer raised rates to conform to the current actuarial risk of loss. Your insurance has not been "cut"--the same insurance exists, albeit at higher premium rates. Woe be to Trump for advocating realistic premiums.

Some recent history:

Federal flood insurance has been available since 1968 and subsequently in many instances such insurance was required for homes in flood zones. As with most federal insurance programs, the premiums charged were woefully inadequate to cover the risk of flooding and eventual claims. As a result, as of 2011, the National Flood Insurance Program was underwater (i.e., owed the US Treasury$17 billion for claims paid in excess of premium reserves). Congress passed the Biggert-Waters Flood Insurance Reform Act (good name, that) in 2012 which, in order to shore up the program, sensibly required the program charge actuarially realistic premiums (in some cases, realistic premiums meant a ten-fold increase).

Much of that didn't last long. In 2014 Congress passed another Act, the Homeowner Flood Insurance Affordability Act, which watered down many of the reforms of Biggert-Waters.

Currently, the programs insures more than 5.5 million homes (most in Florida and Texas). They can now expect another flood of claims and another trip to Congress to borrow funds beyond its current limit of $30 billion.

The federal government causing moral hazard in the US housing market. Heard that one before?

This reminds me of something I just saw on Facebook, from the ever-lovely NRDC.

It's headlined "Trump Revoked Flood Protections For Millions Of Americans".

Turns out it's that he somehow (because they don't say what the process was or link to an EO or anything, because that would be actual reporting) revoked or stopped a FEMA flood standards thing.

And the "revoked flood protections" money quote is "[Trump's actions] likely mean that HUD’s proposed rule that incorporated the flood protection standard into their criteria for funding public housing will never be adopted".

That's right - "likely mean" that HUD's proposed but not enacted yet rule for public housing funding means that future public housing in flood areas might not be raised to potentially lessen flood damage.

Sure, no mention of what that would cost vs. whatever the probable savings from flooding avoidance, or what actual human cost these "protections" would likely have prevented, but why would we want that?

What did you think the NRDC did, dispassionate cost/benefit analysis?

(I don't like the President, but I like NRDC a lot less, because of "analysis" like that.

Which made it to Facebook as "President Trump obviously wants us to all be killed", because nobody read the article in the first place, just the headline.

Makes one fear for the Republic, that.)

Yep, costs must be cut to create jobs, starting with not paying workers to build housing that is less likely to flood because paying workers costs too much and that harms workers.

Why is the NRDC, whose purported goal is to protect the environment, complaining about the threatened removal of subsidies for housing construction in floodplains and on barrier islands? Shouldn't they be in favor of policies that incentivize people to avoid building or rebuilding in coastal and riparian environments? Certainly, for instance, if I had tons of money and wanted to help Red Knots (threatened species of shorebird), I'd buy an Atlantic barrier island, burn down all the beautiful homes, and declare it off limits to dogs, cats, and vehicles. Yet I see that the NRDC runs, with apparent approbation, a photo of Folly Beach, much of which has shoulder-to-shoulder houses right down to the tideline.

The unfortunate fact is that many, if not most people who profess concern for environmental degradation only do so as part of their overall Blue Team affiliation; and they judge policies and practices in Blue vs. Red terms rather than in view of their actual impact on ecosystems. If it were otherwise, we'd expect to see serious environmentalists opposing policies and proposals that tend to increase the population of the United States—things like mandated new-parent leave, taxpayer-subsidized child care, "essential" maternity coverage in the ACA...

"Note the Trump administration previously was pushing a plan to cut the insurance to pay for The Wall."

First, I thought Mexico was going to pay for the Wall. Second, since money is fungible, there is no sense in which cutting insurance or FEMA funding is "paying for" the wall. They are separate and independent bullet points in Egan's tweeted document. In fact, there are other spending items in the document, so the cuts could also be said to pay for those. We could also just as easily say that the cuts are to pay for continuing Medicare spending at present levels. In truth, all spending, whether for the wall or Medicare, is paid for from current and future taxes. Spending cuts never "pay for" anything, including neither tax cuts nor less popular spending.

So, what part of that sentence is true?

The part about requirements to pay workers makes workers poorer. Everyone knows paying workers kills jobs. Costs must be cut to create jobs! Spending must be cut to create more jobs!

If you want to get into the metaphysics of the "pay for", go ahead.

But keep in mind that when the rest of see a proposal to cut X dollars from Program A and spend X dollars on Program B, we're gonna say that cuts to program A are paying for program B.

>we’re gonna say that cuts to program A are paying for program B.

Only the ones of us that are gullible.

In the real world, 1500 programs get cut, and 4200 programs are increased.

Can you tell us which one was cut for the benefit of which?

If your Ty Cowen, you can. The most recently-newsworthy cut was obviously made to fund the most politically-mockable increase. It's that simple!!

The clue is when they're in the same bill.

I have a home in a high risk area and each hurricane season is a nail biter. I would not purchase a home in a hurricane prone area today. I am amazed that people do; indeed, in my community the contractors can't build houses fast enough to keep up with the demand. Are these people unaware of the risk? My community had significant damage from a hurricane just a year ago, but memories seem to be awfully short. Many of the homes in my community are second (or third, fourth, fifth, etc.) homes, which would have been the first to have lost the federal subsidy for flood insurance under Biggert-Waters. I don't get it. We have experienced high winds the past two days from "potential" tropical cyclone ten. Potential? Last year when I evacuated I took back roads inland to a friend's home. When I was well-inland I crossed over I-26 and I couldn't believe what I was seeing: even though all lanes were only opened west-bound (that's what they do during evacuations), the cars weren't moving, more like a parking lot than an interstate highway. And this isn't anything like the densely populated Houston area. The disaster in Houston will be repeated again and again, but people will continue to buy homes in hurricane prone areas. It's irrational! On the other hand, for eight, nine months a year, it is heaven on earth. If only the other three or four weren't Hell.

Biggert-Waters was a job killing costly jack boot Federal program that would have forced paying tens of billions to workers to build stuff that would reduce future predictable storm losses. Requirements to pay workers kills jobs!!!

My guess is 75% of the Texas flood damage will not be covered by any flood insurance. And it's 75% and not 90% not covered because of the past three years of record flood damage from three hundred year floods.

More than half the property flooded in this storm is not in an area that has flood management in compliance with the flood insurance program.

Texas has no zoning, so to comply, Texas mandates construction be one foot above the 1% high water mark. That means local government must want the Federal government to draw realistic flood maps so local government can mandate higher construction costs. If "realistic" maps are not drawn, then the property is not going to qualify for subsidized flood insurance, even if you want it.

Federal flood insurance comes with the stick of government mitigation of flood risk at an unrealistic low level of risk mitigation which is considered too costly in 90% of communities. The only reason some places have strong regulation and public investment is the FIRE sector forces it, eg in NYC.

Just heard on radio only 15% of property in Harris County has flood insurance, but those will have higher price tags because they needed mortgages or were newer and thus costlier, so I think my 25% insured loss might be a good guess. So, if the flood insurance claims are $10 billion, then the uninsured private losses will be at least $30 billion, and the public losses that are typically paid for at 75% plus Federal money will be as high or higher.

In other words, the Federal flood insurance program "losses" will be trivial in the context of likely Federal spending and debt added due to this storm. Will every Texas household get something like $7500 Federal cash to recover even without real property loss? That isn't much when you are a renter with no home, no transportation, no job.

A combination of poor land use practices and climate change. 100 year floods/rain events are now happening more frequently. The insurance companies will line up for a handout. The builders will see an opportunity to construct new subdivisions for a quick buck. This is how we keep consuming and boost those GDP numbers, right? Government seems relevant again to those in need. The only loser seems to be the homeowner or renter. https://www.theatlantic.com/politics/archive/2017/08/congress-flood-insurance/535731/

"Scientists, other experts and federal officials say Houston's explosive growth is largely to blame. As millions have flocked to the metropolitan area in recent decades, local officials have largely snubbed stricter building regulations, allowing developers to pave over crucial acres of prairie land that once absorbed huge amounts of rainwater."---https://projects.propublica.org/houston-cypress/. The maps are illuminating.

This is a case, like ending a financial meltdown and others, where government will cover the damage in the end, but pretend that it won't, allowing taxes to be cut and/ or funds to drain away, hoping that they can avoid such catastrophes during their time in office. Some people believe that relieving catastrophes is one of the main functions of government. Ignoring catastrophes isn't wise in most governmental contexts. Consequently, we'll get to hear the same comments that occur every time a catastrophe occurs ( Why were they living there? Why didn't they sufficiently prepare? ) The answer to all of our questions is because things cost money, and people don't like to pay. And, of course, I say this every time a catastrophe occurs.

Why should this have anything to do with "taxes" per se? If you want to own a home between the Atlantic and the intercoastal waterway in Florida you pay for the cost of your flood insurance. Not some cowboy in Oklahoma. The cowboy can pay for their own tornado insurance.

So federal flood insurance premiums paid < E[flood insurance payouts]. I find "that" shocking! I think liberals think this can work in the long run, hence why they want to move insurance to the Feds.

I do not mind the feds running the program buy they should make the premiums high enough to cover the losses plus the clean up when people's fuel and stuff ends up in the water down stream.

That is politically impossible. Remember when Obomber tried to lower mortgage insurance premiums? And anyone who was against the change "hated the poor"*?

*According to MSNBC, Salon, Slate, HuffPo and all the other left-wing echo chambers.

Don't believe me just read the title used here....


In fairness, I really doubt anyone that works at time understands actuarial math. They only know how to report based on how they feelz.

can't imagine many Texans will vote for Trump if he spends the money on his stupid wall in the desert instead of helping them out

He's more than welcome to build it in a desert somewhere, but in Texas we have a lot of grazing/farmland on the border. If he wants to build the wall there, the eminent domain he'll have to use will get the right pretty worked up (though it will be funny to see democrats get upset about eminent domain, when they've long argued the 'government' knows land use better than the market, so eminent domain is a good not an evil).

We had flood insurance for decades and it seemed to go up every year. In the last decade, they went from a few hundred/yr to 3,000+ per year for coverage that wouldn't get close to replacement in California.

At that cost, I looked at the risk and said no. It was a bad bet. With my life planning horizon now only 15 years and with all my children in excellent positions, if we ended up in old folks home or moving sooner than expected, that life (stuff happens).

The interesting thing was that they were then motivated to try again with a premium under half the amount originally demanded. It did get it closer to a reasonable risk analysis, but the very fact that they had been screwing me for the last decade said a lot about their morals and ethics as an institution.

Apparently, the upgrade to the flood control only counted when I complained and dropped them. That behavior of taking advantage of people not watching thing closely and putting things on auto-pay results in class action suits in the "real competitive marketplace". Qazi-governmental institutions seem to only have self-interest with no morals or ethics about dealing with real people.

However, that behavior implies that if you do have a real claim, they are going to screw around by paying legal games, bureaucratic games, etc. and requiring you to waste effort and money hiring experts to fight to get the claims paid. That just reinforced my decision as the maximum amount of coverage would actually cover even less (paying the lawyer/experts) and the value and lifespan impacts of the amount of aggravation could exceed the amount of insurance.

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