On the Hill



This year marks the 50th anniversary of the National Flood Insurance Program (NFIP), and the program is definitely showing its age. As natural disasters have increased in frequency, flaws in the foundation of the program that were previously manageable are beginning to widen, highlighting the need for reforms.

Administered through the U.S. Federal Emergency Management Agency (FEMA), the NFIP was created in 1968 as a result of the destruction caused by Hurricane Betsy across Florida and Louisiana. Prior to Hurricane Betsy, the government did not collect or maintain enough data on floods for insurers to create an actuarial table. Insurers must be able to calculate the probability of an event in order to insure against it, so virtually no flood insurance was available to consumers. Once the need for flood insurance became clear in the aftermath of the storm, the U.S. government created flood maps, gathered data and created the NFIP.

For decades, the NFIP functioned reasonably well, but as extreme weather and strong hurricanes have become more frequent, the financial toll on the program has greatly increased. Of the $337 billion in insured losses from disaster events in 2017 alone, $330 billion was caused by natural disasters—a nearly 90 percent increase from the previous 10-year average. The NFIP was not allowed to carry over a surplus, meaning if the program ever made more money than it paid out in claims in a given year, it could not save it for the following year should a flood event occur.

Inevitably, in years when major flood events have occurred, the NFIP has had to borrow from the U.S. Department of the Treasury to pay claims from major natural disasters. As of March 2017, FEMA’s debt from the NFIP stood at $24.6 billion. However, later that same year, the devastation from Hurricanes Harvey, Irma and Maria created many more claims than FEMA was unable to pay. The U.S. Congress passed the Additional Supplemental Appropriations for Disaster Relief Requirements Act to provide assistance and canceled $16 billion of the NFIP’s debt that October. As of February of this year, FEMA’s debt stood at $20.5 billion.

BOMA International advocates for flexibility, ideally allowing high-value properties that are currently forced to buy additional private insurance coverage to be exempt from the mandatory NFIP policy purchase.


The NFIP also has a paperwork problem. Any building that must carry flood insurance is required to first purchase a policy through NFIP. Because the program only covers up to $500,000 for a commercial building and an additional $500,000 for a building’s contents, many buildings also must carry private coverage. BOMA International continues to advocate for flexibility, ideally allowing high-value properties that are currently forced to buy additional coverage to be exempt from the mandatory NFIP policy purchase. This would greatly simplify the process of acquiring the needed coverage for a building and enhance the private insurance marketplace by creating a larger, more robust and actuarially diverse buying pool. Between heavy debt, premiums insufficient to pay for claims, onerous policy structures, protection gaps and a risk pool that needs both reassessment and reform, the NFIP is in need of major repairs.

Over the last few years, Congress has passed short-term reauthorizations to fund the program for a few months at a time. Each time an expiration date nears, policyholders are forced to wring their hands and hope that a slow-moving legislative body acts quickly. Each time, legislators on both sides of the political aisle suggest that next time they will make room for the changes that are needed to enhance and maintain the financial solvency of the program. Currently, the program is funded until November 30, 2018. Buoyed by bipartisan support, the program has been kept from lapsing, but meaningful reform is still needed.

In 2017, the U.S. House of Representatives passed a reform package to expand and improve NFIP that would have addressed many of commercial real estate’s concerns. The bill then stalled and was never voted on in the U.S. Senate. With the NFIP set to expire the following day, Congress did successfully pass an extension of NFIP in July, extending the program through November of this year. Because of the new deadline, the program will need another extension during the post-election lame-duck legislative session, which is likely to prove challenging in a divided Congress.

As flood events continue to increase in frequency and severity, it is important for Congress to enact reforms soon to keep the program solvent for future disasters.

This article was originally published in the September/October 2018 issue of BOMA Magazine.