Flooding stands as the most frequent and financially devastating natural disaster in the United States, inflicting billions of dollars in economic damage annually. According to the National Flood Insurance Program (NFIP), floods are involved in 90% of all U.S. natural disasters.
Despite that clear and present danger, the number of NFIP policies has declined from a peak of 5.7 million in 2009 to 4.7 million by May this year. Over the past few years, more than 100,000 Texans have canceled their federal flood insurance policies, which could increase the recovery costs for homeowners and taxpayers in the wake of Hurricane Beryl.
Hurricane Beryl, which struck as a Category 1 hurricane on Monday morning, brought heavy rainfall and significant storm surge to the central Texas coast, causing extensive flooding before weakening to a tropical storm. The hurricane also resulted in power outages affecting 2 million residents.
This flooding in one of the nation's most flood-prone regions coincides with that steady decline in the number of households and businesses holding federal flood insurance policies, both in Texas and across the country. The Federal Emergency Management Agency (FEMA) manages about 90% of the nation's flood insurance through the National Flood Insurance Program.
For years, FEMA has cautioned about the financial risks for individuals without flood insurance. After Hurricane Harvey caused significant damage in Texas in 2017, FEMA noted that many uninsured residents had to rebuild using personal savings and any available federal aid.
Despite these warnings, Texas has seen a drop in federal insurance policies from 787,000 in September 2021 to 655,000 this May—a 17% decrease, according to FEMA records.
"This is particularly alarming given the high activity expected for this year’s hurricane season," Madison Sloan, director of disaster recovery at Texas Appleseed, an advocacy organization, told Politico.
Families without flood insurance must depend on a different FEMA program that provides modest amounts for emergency expenses, such as temporary repairs to make homes livable. In contrast, federal flood insurance can cover up to $250,000 per claim.
"This means many people might not qualify for housing assistance from FEMA or HUD," Sloan added, referring to the Department of Housing and Urban Development.
The reduction in policies aligns with a revamp of the insurance program that has significantly raised premiums for many policyholders. The new rates more accurately reflect individual property flood risks and eliminate broad discounts.
In Texas, average policy costs are projected to rise from $775 to $1,400 over several years. Similarly, in Louisiana, the average premium is set to increase from $815 to $1,900, leading to a decrease in policies from 510,000 to 445,000 since late 2021.
Nationwide, FEMA policy numbers have dropped to their lowest since 2008, from 5.6 million to 4.7 million in May.
"If people drop flood insurance because it's too expensive, their homes won't get repaired," Sloan said. "This decreases community resilience and increases the number of people without housing."
David Maurstad, FEMA’s assistant administrator for the Federal Insurance Directorate, has disputed claims that higher rates are behind the policy drop. He believes that the decline started before the new rates were implemented and has stabilized since April 2022. He also pointed out that some states, like Florida, have seen policy increases, partly due to new state laws mandating flood insurance for many property owners.
The fluctuating number of federal insurance policies usually correlates with the occurrence of major flood events, Maurstad said, noting that Texas has not experienced a significant flood in nearly seven years.
Hurricane Beryl might bring more scrutiny to FEMA’s new rate structure, known as Risk Rating 2.0. FEMA's new rating methodology implemented on Oct. 1, 2021, aims to provide fairer, actuarially sound rates. This adjustment will significantly increase premiums for over 200,000 policies while reducing them for approximately 1.15 million others. Additionally, a 2019 federal rule now requires lending institutions to accept private flood insurance policies that meet specific criteria. Attorneys general from 10 states, including Texas, are challenging the new rates in court, arguing they need congressional approval.
Some lawmakers from coastal states argue that the new rates will force people to drop their coverage.
FEMA has said that it is prepared to collaborate with Congress to find solutions that make flood insurance more accessible.
There is also uncertainty about how many former FEMA policyholders have switched to private flood insurance. Private insurers, having re-entered the market after nearly a century, are now writing flood policies again thanks to better risk modeling. By 2023, the net premiums written for private flood insurance reached $803.1 million, a 3.7% increase from the previous year.
