Overwhelming Risk: Rethinking Flood Insurance in a World of Rising Seas (2013)

August 2013
Our coasts face growing risks from sea level rise. Today's flood insurance system encourages development that increases these risks—and taxpayers nationwide pay the price.

Sea level is rising and increasing the risk of destructive flooding events during powerful coastal storms. At the same time, increasing coastal development and a growing population are putting more people and more property in harm's way.

This risky pattern of development is being reinforced by the taxpayer-subsidized National Flood Insurance Program, which sets artificially low insurance rates that do not reflect the true risks to coastal properties. When major disasters strike, taxpayers nationwide are left liable for billions of dollars in insurance claims and disaster relief.

We urgently need to reform our insurance system to more effectively manage and reduce these coastal risks—risks that are projected only to grow in a warming world.

Rising sea levels represent a significant risk. Nearly three million people live less than three feet above today's average high tide.

  • Sea level rise amplifies storm surges during powerful storm events, contributes to shoreline erosion and degradation, steadily inundates low-lying areas, and raises flooding risks from extra-high normal tides, all of which increase the likelihood of property damage and destruction.
  • Global average sea level is likely to increase 6 - 16 inches by 2050, and up to 6.6 feet by 2100, primarily in response to global warming.
  • Sea level rise is accelerating, especially along the U.S. East Coast and Gulf of Mexico, which have seen much higher and faster rates of sea level rise than the global average.
  • In 2012, the insured value of residential and commercial property in the coastal counties of the 18 Atlantic and Gulf coast states was $10.6 trillion, with New York and Florida topping the list at $2.9 trillion apiece.

The taxpayer-subsidized National Flood Insurance Program is practically the sole provider of coastal flood insurance

  • Many private insurers have left the coastal insurance market in the face of increasingly unmanageable risks.
  • The National Flood Insurance Program (NFIP) is now essentially the only provider of flood insurance for homeowners and small businesses. Created by Congress in 1968, NFIP is administered by the Federal Emergency Management Agency (FEMA).
  • As of 2012, NFIP provided over 5.6 million insurance policies, with approximately $1.25 trillion in insured assets.

Multiple factors challenge the success — and very survival — of the National Flood Insurance Program

  • Artificially low rates. NFIP's subsidized insurance rates do not reflect the true risk of coastal flooding events and are too low to cover the program's cost, especially during years with exceptionally high damages. As of November 2012, NFIP was more than $20 billion in debt, a number likely to rise to nearly $30 billion once all Hurricane Sandy claims are settled.
  • Flood maps that do not reflect the true risks of coastal flooding. The flood-risk maps created by FEMA to help determine insurance rates fail to account for future sea level rise and long-term erosion, which will create increased risks to many coastal properties.
  • Repeated payouts to the same high-risk properties. Insurance claims on properties repeatedly damaged by flooding, or "repetitive losses," have accounted for about a quarter of all NFIP payments since 1978. Currently, repetitve loss properties represent only 1.3 percent of NFIP policies but are expected to account for 15-20 percent of future losses.
  • Exemptions for certain high-risk properties. NFIP's "grandfathering" clause exempts certain properties from complying with protective requirements and allows them to avoid paying higher insurance rates even if the location is rezoned with a higher flood risk.

We can reform the coastal insurance system to reduce our risks

Subsidized insurance rates, the practice of passing through damage and loss costs to taxpayers, and the lack of accurate information on flood risks -- all these factors have led to more coastal development, more exposure to climate risks, and less incentive to take measures that reduce these risks. To address this, UCS recommends the following:

  • Ensure that insurance rates accurately reflect risk. Some increases in NFIP's insurance rates are already set to take place; these increases should not be delayed. Low-income property owners should get vouchers or rebates to help them maintain adequate insurance coverage.
  • Include sea level rise projections in flood maps. FEMA should use the latest scientific projections of sea level rise and storm surge in maps used to determine ongoing and future flood risks and insurance rates.
  • Discourage development in floodplains. FEMA should discourage continued building and rebuilding in high-risk areas by reducing payouts for repetitive losses and increasing rates in the event of repeated losses.
  • Remove unfair subsidies. NFIP should remove grandfathering provisions that unfairly subsidize some property owners at the expense of others and perpetuate risky development in coastal floodplains.
  • Implement additional reforms, including the following: Mandatory flood insurance should be enforced for all properties in high-risk areas, options for home buyouts and relocation should be made available in the highest risk areas, and incentives should encourage property owners to make upgrades that help reduce the risk of coastal flooding damage.

The Biggert-Waters Flood Insurance Reform Act of 2012 is taking some important first steps to remedy some of these shortcomings in the National Flood Insurance Program. It should be implemented as scheduled, though the additional steps outlined above should be taken to further minimize our coastal risks in a world of rising seas.

Report Maps and Chart

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Images: Master Sgt. Mark C. Olsen/U.S. Air Force