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Increasing Floods Leave the Uninsured Vulnerable

​​Disastrous floods have challenged many in the United States this year, and U.S. federal government officials are concerned about the continuing large flood insurance gap, which slows recovery and leaves many people vulnerable to future damage.

Currently, the National Flood Insurance Program (NFIP) is the primary source of U.S. residential flood insurance. More than 22,000 communities participate in the NFIP, with nearly 5.1 million policies providing more than $1.3 trillion in coverage, according to a new report from the Congressional Research Service (CRS).

The NFIP identifies areas at high risk of flooding as Special Flood Hazard Areas (SFHAs). 

Property owners are required to purchase flood insurance if their properties are in SFHAs, and if their communities participate in the NFIP, and if they have federally backed mortgages.

However, “because the SFHA boundary is central to NFIP mapping, it may create a false belief that flood risk changes abruptly at the boundary and that properties outside the SFHA are safe and do not need flood insurance,” the CRS report states. In reality, about 20 percent of NFIP claims have been for properties outside SFHAs, and all 50 U.S. states have experienced floods in the last five years.

Recent events illustrate the problem of high uninsured losses. For example, flooding caused by the 2017 hurricanes in the United States highlighted the issue of low numbers of insured flood victims, especially in Puerto Rico and the U.S. Virgin Islands. And on average, only 10 percent of flooded structures had NFIP insurance in the 41 counties in Texas that received FEMA Individual Assistance during and after Hurricane Harvey, the report says.

Sometimes, policies are clustered in the wrong areas. In the October 2015 South Carolina floods, the average NFIP penetration rate in counties with a federal disaster declaration was only 5 percent, according to the CRS report. Close to 90 percent of policies in South Carolina were concentrated at the coast, but the most serious flood damage was primarily inland, and few residents were insured there.

​​The NFIP could achieve greater financial stability with a wider policy base and by finding ways to increase coverage outside the SFHA, the CRS says in its report. 

In addition, FEMA has identified the need to increase flood insurance coverage across the nation as a major priority for NFIP reauthorization. FEMA’s has set a goal of doubling flood insurance coverage by 2023 through the increased sale of both NFIP and private policies. FEMA’s view is that both the NFIP and an expanded private market will be needed in order to increase flood insurance coverage for the nation and reduce uninsured losses after the next flood, according to CRS. 

​To read more on U.S. flood recovery issues, read the Security Management article “Rising Seas.”