Flood Insurance and the Future of Coastal Living

Why is flood insurance so easy to obtain in coastal areas of the US? Despite the recognized threat of rising sea levels and a measurable pattern of steadily increasing coastal storms, why are so many people still continuing to live, remain, build, and rebuild their waterfront houses after floods which are becoming increasingly predictable?

The answer isn’t as complicated as you might think. In fact, what some are likely to attribute to innate psychological factors or to an instinctive human attraction to the sea can actually be linked to something far less mysterious: a government initiative called the NFIP, or National Flood Insurance Program.

Decades ago, in response to unwillingness on the part of private insurers to cover flood damage for low-lying property owners, the government created this program to provide discounted, affordable insurance plans that could make coastal dwellers whole again after damaging storms. But contrary to the expectations of the program’s designers, those who bought and used the government subsidized insurance typically stayed in their rebuilt coastal homes instead of leaving for higher ground. This unexpected behavior has wreaked havoc on the well-intentioned program and its funding model ever since. Two major problems have undermined the success of the program in expensive and complicated ways:

1.       First, eligibility for the insurance factors in the location of the insured property on FEMA floodplain maps that are rapidly becoming outdated an incorrect, and 

2.       Since the government compensates and subsidizes private insurance companies for providing policies to coastal property owners, the insurance companies suffer no losses, and in fact, they make a larger profit (sometimes a much larger profit) on bigger and more destructive storms. Companies are paid in taxpayer dollars for each claim they handle, so they have no incentive to tighten eligibility requirements or change policy details.

As a result of these two issues, taxpayer funding is often used to repair second homes for wealthy individuals who keep rebuilding on the beach (eligibility does not involve means testing). And unfortunately, those who cannot afford to leave are often trapped in their coastal homes by a slow and difficult buyout process, coupled with an easy and seamless insurance payout, which encourages them to rebuild over and over instead of moving.

If you think this sounds absurd, so do we. (And so does John Oliver, who covers the issue in his recent episode of Last Week Tonight. You can watch it right here.)

But change may be on the horizon. The NFIP is scheduled for reauthorization on December 8th of this year. Will recent climate data play a role in the reauthorization process? Will the impact of the summer’s devastating hurricanes push congress to make some long overdue changes? We’ll see!

To learn more about the NFIP and the path to reauthorization, click here, and if you’re still curious, here. And of course, contact our office if this issue might have a direct impact on the future of your coastal home or your flood insurance policy.