As Floods Become Bigger and More Common, Risks from Insurance Gaps Also Grow

Editor’s note: This story is part of Governing’s ongoing Q&A series “In the Weeds.” The series features experts whose knowledge can provide new insights and solutions for state and local government officials across the country. Have an expert you think should be featured? Email Web Editor Natalie Delgadillo at ndelgadillo@governing.com.



Two-thirds of the costs from natural disasters come from flooding. Each hurricane event reanimates conversations about how long insurers can continue to provide disaster coverage to homeowners. The increasing frequency of extreme rain events adds to this concern, as devastating floods come to places — most recently Asheville, N.C. — once believed to be insulated from the worst consequences of a warming world.

Few households have flood insurance; the national average is somewhere between 4 and 6 percent. The rate is higher in known areas of risk, but even in flood-prone areas of Florida only about a third are covered. Flood coverage is not included in homeowner policies, though people often don’t find this out until a flood impacts them.

Few homeowners who do have protection obtained it from a private carrier. At present, 95 percent of flood insurance policies are issued by the National Flood Insurance Program (NFIP) at the Federal Emergency Management Agency (FEMA).

The NFIP has no long-term mandate and must be reauthorized continuously by Congress; in fact, Congress has enacted 30 short-term extensions of it since 2017. FEMA has suggested steps Congress could take to strength the NFIP, but these haven't gained traction as priorities.

As the second-ranking official at FEMA, Daniel Kaniewski oversaw this flood insurance program. While in this role, he created resilience programs that have become integral to FEMA’s mission. He brought experience as a firefighter and paramedic, as well as a doctorate in public policy and administration, to this work.

Now managing director for the public sector for Marsh McLennan, Kaniewski has an ongoing involvement in developing resilience strategies for communities. In a conversation with Governing, he talked about challenges in the flood insurance market and the return from local government investments in risk reduction. The following transcript has been edited for length and clarity.

How is flood insurance different from other coverage?

Homeowner’s insurance is largely from private carriers. In some of the most disaster-prone areas in the country there's a lack of availability of private insurance. States are stepping in and providing that. Ninety-five percent of all flood insurance policies are written by the NFIP. The private markets have the other five percent.

With flood insurance it's not an availability issue. By law, FEMA and the NFIP have to offer flood insurance policies to anyone who wants one.

How is this system working?

If a survivor from a Hurricane Helene or Milton does not have flood insurance but experiences a flood loss, they will be reliant on their savings, on their family members, on their communities, and in the end on the government, including the federal government, to support them in their time of need.

Given that only 4 percent of Americans have flood insurance, the real challenge is educating Americans on the need for flood insurance, with simple facts like “flood insurance is not included in homeowner’s policies.” Making sure that they know that insurance is available would be the second step, and then the third would be ensuring that it's affordable.

The reality is that everyone should have flood insurance, and if there’s a low probability of flooding where you live, the premium will be priced accordingly. It wasn't always the case for the NFIP but currently, flood insurance premiums reflect risk. For homeowners that simply can't afford flood insurance, and that's the reason they're going without, we need to find solutions.

NFIP is has long been hobbled by the statute that formed it. It doesn't give FEMA the flexibility it needs to offer a more modern flood insurance program.

What would you want FEMA to be able to do that it can’t do already?

The simple answer is that the 17 legislative proposals that FEMA has put forward should be considered. None of those have been acted upon.

I'm not saying it has to be all 17, but there are more than one that would go a long way.

Are there some that you see as priorities?

The first step would be having a multiyear reauthorization. Without a long-term reauthorization, FEMA can't even think past the next few months, or whenever the deadline happens to be.

NFIP is unique in the sense that it's collecting premiums. Even that is a challenge, because it is over $20 billion in debt. One of the proposals would eliminate its future debt. Right now, FEMA — and by FEMA, I mean the American taxpayer — is paying interest on that debt to the U.S. Treasury. Think about what could be done if that money was spent on risk reduction programs for local communities instead of interest payments.

What kinds of risk reduction?

Risk reduction can be at the individual structure level; it could mean elevating the home. A more extreme example would be a FEMA buyout at a community level, called a managed retreat. That’s taking land, and whatever structures are there, buying it out and turning it into parkland or some other community resource.

Those are not inexpensive propositions but there are grant programs to provide funding, especially to those properties where flood insurance payments are being made on a repeated basis. One of the nonprofits that I'm affiliated with, the National Institute of Building Sciences, found that on average, every federal grant dollar invested in hazard mitigation saves six dollars if a disaster occurs.

What can local governments do?

The Community Rating System (CRS) program [a voluntary program that offers lower NFIP premiums in communities that take prescribed steps to reduce flood risk] provides a strong incentive for a community to invest in community-wide resilience measures. Local officials can save policyholders money, up to a 45 percent discount. The CRS protects that homeowner, it protects the community and helps the community recover more quickly after disaster.

To the extent that there are more private insurers entering the flood insurance market, that will hopefully expand the take-up. One way that our company, Marsh McLennan, has looked at expanding coverage is through something called community-based catastrophe insurance, which is insurance placed at the community level, rather than the individual structure level.

There’s a lot of interest in this, especially in low- to moderate-income communities where the flood insurance take-up rate is particularly low. We are running pilots right now with a number of local communities. It’s a product [covering multiple properties and purchased or facilitated by a community entity] that provides immediate payment following a trigger event if the parameters for it are met. It’s a model we developed, and others around the country are replicating it.

Probably the most challenging communities are those that are rarely hit by flooding, but when the flooding does occur, it's catastrophic. An example would be the North Carolina communities that were most impacted [by Helene].

The quote one often hears is “I didn't think it could happen here.” Unfortunately, at any given time there's a non-zero chance of a disaster happening anywhere.