Overwhelming Risk: Rethinking Flood Insurance in a World of Rising Seas

In this report the Union of Concerned Scientists (UCS) reviews the risk of sea level rise as related to the coastal insurance market. The National Flood Insurance Program (NFIP) is described as essentially the only provider of flood insurance for homeowners and small businesses, and UCS analyzes the program’s capacity and limitations. Recommendations are made to address managing coastal flood insurance by the NFIP, and as related to FEMA’s overall role as well. 

Sea level rise is a serious risk to nearly three million people living less than three feet above today’s average high tide. As of 2012, NFIP provided over 5.6 million insurance policies, with approximately $1.25 trillion in insured assets.

According to UCS, several key factors challenge NFIP’s success as a solvent risk management system including: low rates of insurance purchase, artificially low premiums that do not reflect true risk, loopholes in the program that allow some properties to keep their rates low through grandfathering provisions, repeated payouts for losses to the same high-risk properties, and the failure to account for future sea level rise in flood risk maps that help determine insurance rates.

UCS demonstrates how subsidized insurance rates, the practice of passing through damage and loss costs to taxpayers, and the lack of accurate information on flood risks has all led to more coastal development, more exposure to climate risks, and less incentive to take measures that reduce these risks.

To address these issues, UCS recommends the following:
• Ensure that insurance rates accurately reflect risk
• Include sea level rise projections in flood maps
• Discourage development in floodplains
• Remove unfair subsidies
• Implement additional reforms

The additional reforms suggest that mandatory flood insurance should be enforced for all properties in high-risk areas, options for home buyouts and relocation should be made available in the highest risk areas, and incentives should encourage property owners to make upgrades that help reduce the risk of coastal flooding damage.

Publication Date: August 13, 2013

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