The National Flood Insurance Program (NFIP) has long been a cornerstone of flood risk management in the US, providing flood insurance coverage to homeowners, renters, and businesses in participating communities. Established in 1968, the program was designed to reduce the financial burden of flood disasters by making flood insurance accessible and affordable.
Despite its decades of service, the NFIP has faced growing criticism due to its financial sustainability challenges, particularly following the devastating losses from major storms like Hurricane Katrina in 2005 and more recent disasters.
The program's reliance on government subsidies, coupled with rising flood risks due to climate change, has raised questions about its future viability.
Dana Sutton, assistant vice president and Atlantic region flood practice lead at NFP, has witnessed firsthand the challenges facing the NFIP and the private flood insurance market.
In a follow-up discussion with Insurance Business, Sutton shared her insights on the NFIP’s current state, its future potential, and the critical role the private insurance market can play in addressing long-term flood risk management and sustainability.
When asked about the future of the NFIP, Sutton acknowledged that while the program has been instrumental in providing flood coverage, there is significant room for improvement.
“There’s certainly room for improvement, and I think there is no disagreement about that,” she said. Sutton said that while the NFIP served its purpose for many years, its effectiveness is now being questioned due to increasing flood risks and the program’s outdated processes.
“It really served us well for many, many, many years, and it was what we had for a long time,” she said, but noted that events like Hurricane Katrina made it clear that the program needed to evolve.
One of Sutton’s primary recommendations is for the private flood insurance market to take on a larger role in providing coverage.
“I would love to see the private market expand and grow,” Sutton said, emphasizing that private insurers, with their flexibility and nimbleness, are better suited to address the evolving nature of flood risks.
She believes the NFIP should transition to being “the market of last resort” while allowing private insurers to lead the way.
"I think the long-term solution is to see the private market grow and expand like it has been," she said, noting that private carriers can react more swiftly to changes in flood risk, something the NFIP struggles with.
Sutton also noted that the changes introduced under the NFIP’s Risk Rating 2.0, which seeks to align flood insurance premiums with actual flood risk rather than relying on outdated subsidized rates, have paved the way for private insurers to compete more effectively.
“With Risk Rating 2.0, as they’re phasing out some of these subsidies and moving to methods of rating more similar to what the private market’s been doing for years, the private market’s now able to compete,” she said.
The NFIP’s transition toward these more market-driven pricing structures could allow the program to coexist with private insurers, which Sutton views as a more sustainable model for the future of flood risk management.
Sutton further discussed the challenge of balancing risk and ensuring the long-term sustainability of flood insurance programs. While the NFIP remains a vital safety net for many, especially those in high-risk flood zones, Sutton believes that private insurers will play a pivotal role in mitigating the financial burden of recurring flood events.
Recent studies have warned that the NFIP’s long-term viability is at risk, particularly due to the escalating costs associated with climate change and hurricane-related damages.
“I think the long-term viability is really going to depend a lot on kind of rate spreading the risk,” Sutton said. “The more we can spread the flood risk, the more robust the programs can be.”
This, she argued, is where private flood insurance can step in, offering the capacity to take on more risk, spread it across a broader base, and ultimately reduce the strain on the NFIP. However, Sutton emphasized that the integration of private flood insurance should complement, not replace, the NFIP.
“There will always be a place for the NFIP,” she said, underscoring its role as a critical safety net. But the growing role of the private market, she believes, will provide better long-term outcomes.
“The private market is much nimbler... so when they need to respond to something, they can – it doesn’t take a literal act of Congress to make a change,” she said.
Sutton pointed out that private insurers have the flexibility to modify products, adjust rates, and implement new strategies much more quickly than the federal program can. This adaptability could prove crucial in addressing the dynamic nature of flood risks, particularly as climate change accelerates.
Sutton also highlighted the role that flood resilience efforts – such as building flood-resistant infrastructure and elevating properties – will play in the sustainability of both private and public flood insurance programs. She pointed to recent innovative approaches to mitigating flood risks, such as the construction of physical barriers to protect communities.
“We saw this in St. Pete, around the hospital,” Sutton said. “They literally built a wall around the hospital, and it worked—kept the floodwaters back.”
Though some of these solutions may seem unconventional, Sutton believes they are indicative of the kinds of creative, proactive measures needed to protect properties from increasing flood risks.
For Sutton, the key to addressing the growing flood risk and ensuring the long-term sustainability of the insurance system lies in both mitigation and innovation.
“If you sustain a significant flood loss, what are we doing to mitigate that going forward?” she said, emphasizing the importance of reducing future losses through forward-thinking strategies.
She believes the federal government’s involvement in providing grants to elevate properties and help build flood-resistant homes is essential, but it must be part of a broader strategy that includes private sector involvement, better flood risk assessments, and greater investment in resilience.
Sutton also discussed the growing need to identify high-risk properties and take steps to make them more flood-resistant, further reducing the potential for future claims.
“There are some super out-there, revolutionary, really outside-the-box ideas,” she said, noting that in other countries, flood mitigation efforts include literal flood barriers around buildings and infrastructure.
“We’re seeing that happen a lot in other countries, where they’re coming up with these physical barrier-type solutions for flood risks. It seems kind of wild, but we’re seeing some of them work in certain instances,” she said.
However, in the short-term, Sutton warned that there will be no avoiding repetitive losses, especially in the Gulf and Florida peninsula, as the region faces more hurricane-related events.
“Carriers are going to have to ensure they’re charging appropriate rates, and I think this is where NFIP can step in – maybe offering more support from a mitigation standpoint. What can we do to improve resiliency to these ever-increasing flood-related events,” she said.
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