The National Flood Insurance Program and Global Warming?

Hugo, Andrew, Floyd, Charley, Ivan, Katrina, Rita, Sandy, Harvey and Irma might all be names found in a Baby Names book, but to those living on the southeast coast of the United States for any length of time, these names might bring a cold sweat to their brow. The first eight names belong to Atlantic hurricanes that, combined, claimed the lives of 1878 people with an estimated property damage of $251 Billion. These are but a few of the more memorable storms in the past 30 years and the 2017 season with Harvey and Irma is shaping up to be a real record breaker in terms of property damage. These events are but a few natural disasters that falls under the purview of the National Flood Insurance Program. The “Great Flood of 1993” devastated the Mississippi and Missouri River drainages. The Mid-Atlantic United States flood of 2006 affected the eastern States from New York to North Carolina. The Mississippi River again flooded in the spring of 2011 and was among the largest and most damaging recorded along the U.S. waterway. In 2013, Colorado’s Front Range experienced devastating floods with rainfall totals exceeding 20 inches in parts of Boulder County. Other flood events include the 2014 New York flood, the 2015 Missouri floods and the 2016 Oklahoma and Maryland floods. The Climate debate has become such a politically charged issue that information regarding the science surrounding the issue abound and much of it is complicated, confusing, misleading, false or just downright speculation. The Union of Concerned Scientists join many organizations on the political left that dismiss claims of impropriety or exclusions in the findings of the U.N. Intergovernmental Panel on Climate Change (IPCC). The Nongovernmental International Panel on Climate Change support many on the political right and came to the conclusion in their 2009 report that in review of the empirical data,

“WE FIND NO SUPPORT FOR THE IPCC’S CLAIM THAT CLIMATE OBSERVATIONS DURING THE TWENTIETH CENTURY ARE EITHER UNPRECEDENTED OR PROVIDE EVIDENCE OF AN ANTHROPOGENIC EFFECT ON CLIMATE.”

Whether the label is “Anthropogenic Global Warming”, “Climate Change”, “Climate Disruption”, “Carbon Pollution”, “Fake News”, “Faulty Science”, or whichever way the political winds blow, the facts are that the NFIP is in trouble. The United States Government Accounting Office placed the program on it’s high-risk in March of 2006 because of concerns about its long-term financial solvency. This should cause concern for those whose assets are in or near flood zones and coastal areas. According to a 2017 report by the GAO:

“CONGRESS AND FEMA HAVE MADE PROGRESS IN MEETING THE CRITERIA FOR REMOVING NFIP FROM THE HIGH-RISK LIST. IN JULY 2012, THE BIGGERT-WATERS ACT WAS ENACTED. THE BIGGERT-WATERS ACT CONTAINED PROVISIONS TO HELP STRENGTHEN THE FINANCIAL SOLVENCY OF THE PROGRAM, INCLUDING PHASING OUT ALMOST ALL DISCOUNTED INSURANCE PREMIUMS (FOR EXAMPLE, SUBSIDIZED PREMIUMS). IN MARCH 2014, HFIAA WAS ENACTED. HFIAA REINSTATED CERTAIN PREMIUM SUBSIDIES AND SLOWED DOWN CERTAIN PREMIUM RATE INCREASES THAT HAD BEEN INCLUDED IN THE BIGGERT-WATERS ACT.”

Why is the NFIP in such trouble? Again, according to the GAO:

“THE NATIONAL FLOOD INSURANCE PROGRAM (NFIP) IS A KEY COMPONENT OF THE FEDERAL GOVERNMENT’S EFFORTS TO LIMIT THE DAMAGE AND FINANCIAL EFFECT OF FLOODS. HOWEVER, IT LIKELY WILL NOT GENERATE SUFFICIENT REVENUES TO REPAY THE BILLIONS OF DOLLARS BORROWED FROM THE DEPARTMENT OF THE TREASURY (TREASURY) TO COVER CLAIMS FROM THE 2005 AND 2012 HURRICANES OR POTENTIAL CLAIMS RELATED TO FUTURE CATASTROPHIC LOSSES. THIS LACK OF SUFFICIENT REVENUE HIGHLIGHTS WHAT HAVE BEEN STRUCTURAL WEAKNESSES IN HOW THE PROGRAM IS FUNDED. SINCE THE PROGRAM OFFERS RATES THAT DO NOT FULLY REFLECT THE RISK OF FLOODING, NFIP’S OVERALL RATE-SETTING STRUCTURE WAS NOT DESIGNED TO BE ACTUARIALLY SOUND IN THE AGGREGATE, NOR WAS IT INTENDED TO GENERATE SUFFICIENT FUNDS TO FULLY COVER ALL LOSSES.”

So, while the Biggert-Waters Act sought to eliminate subsidies and discounts, the Homeowner Flood Insurance Affordability Act of 2012 (HFIAA) reinstated certain premium subsidies and slowed down certain premium rate increases. FEMA has yet to revise its compensation practices for private insurers as required by Biggert-Waters. With Hurricane Harvey alone, risk modeling experts from Risk Management Solutions estimate that Hurricane Harvey’s impacts on both private and public insurance and reinsurance interests at $40 Billion with up to $10 expected to fall on the NFIP. In terms of financial obligations, NFIP is in serious trouble financially.
What is FEMA’s official stance on Climate Change?
FEMA issued a policy statement in 2011 under then Administrator Craig Fugate that established an Agency-wide directive to integrate climate change adaptation planning and actions into the Agency programs, policies, and operations. The directive indicates that FEMA will continue to study the impacts of climate change on the NFIP and incorporate climate change considerations in the NFIP reform effort. The policy statement affirms that the number of policyholders are projected to double by the year 2100.
Regardless of the personal views of President Trump and his administration, the new Director of FEMA, Brock Long has not indicated any change in FEMA’s policies surrounding the Climate Change issue. In fact, Long’s testimony during his Senate confirmation hearing suggested he will continue efforts started under President Obama to better prepare for floods and storms before they happen. Long told senators that he’ll work to make the country more resilient and hinted that he will push back on President Trump’s proposed cuts to flood mapping and other programs intended to reduce communities’ vulnerability to disasters.
Conclusion:
Regardless of my own personal views on Climate Change or the lack thereof, it seems clear that Flood Insurance and the NFIP will anticipate the expansion of risk area’s due to flood hazards. It seems logical that there are three ways to mitigate the costs. Actuarial based rates (not subsidized), expansion of paying policy holders and/or government bailout. Since the HFIAA tilts the burden heavier towards the commercial side of the equation and a government bailout would be extremely distasteful to the present Administration, I would expect higher rates and an expanding flood zone definition in the future, barring a complete reversal by the IPCC.

Jeffery Mays, VP, PLS
JRN Civil Engineers