Forecast for a Political Storm Over Possible Changes to National Flood Insurance Program
October 9, 2017

This hurricane season cut a wide swath of devastation through the Southeastern United States, dealing another blow to the National Flood Insurance Program (NFIP), which faces the risk of significant debt in light of the recent storms.   Currently, the NFIP offers flood insurance to residential properties located in floodplains.  Proponents of the NFIP argue that, without the program, it would be difficult, if not impossible, for homeowners to develop in floodplain areas because they would be unable to obtain mortgages.  Critics of the NFIP argue that it distorts the allocation of risk presented by development in flood prone areas through a redistribution of risk to the American taxpayer.

Last week, the Trump administration signaled its intent to change the NFIP.  Under the proposal, homes built in floodplains after 2020 would not be eligible for NFIP insurance.  Instead, homeowners would be forced to seek private insurance.  The proposal would also grant the NFIP increased power to revoke NFIP policies on residential properties that have experienced repeated flooding.

Environmental groups have expressed support for the proposal, noting that the number of people living in flood-risk areas is a safety issue.  The National Association of Home Builders, on the other hand, is concerned that the program would drastically restrict development in designated flood zones and deal a severe blow to economic development in affected areas, including much of southern Louisiana and Florida.  Congress faces a December 8 deadline to reauthorize the NFIP, and it will be interesting to see how Congress navigates the storm.