Climate change has been wreaking havoc in the insurance industry for years at this point. Unfortunately, the consequences of climate change are becoming more immediate and more severe. As a result, many insurance programs are becoming outdated. According to the R Street free market think tank from Washington D.C., one of those programs that needs to be addressed quickly is the National Flood Insurance Program (NFIP).
The think tank’s most recent study focuses specifically on the NFIP’s habit of writing coverage in areas of new construction that fall within the 100-year floodplains predictions. One of the primary conclusions of this study is that the NFIP needs to cease writing these policies in an effort to stop enabling building in areas at a high risk of flooding.
The study, entitled “Do No Harm: Managing Retreat By Ending New Subsidies” found that new developments are actually growing faster inside the 100-year floodplains than outside of them. That’s a big problem for those new residents.
This problem is compounded when one realizes that the NFIP is already fiscally unstable. The program already owes approximately $20.5 billion to U.S. taxpayers and its costs continue to exceed its revenue year-over-year. By offering policies in areas at a high risk of flooding in the near future, the program is setting itself up to continue to lose money in the future.
R Street Director of Finance, Insurance and Trade R.J. Lehmann spoke with the Insurance Journal about this study. According to Lehmann, “…these recommendations offer an important step in what will be an evolving discussion of how to respond to climate change and sea-level rise. Where we can discourage flood-prone land from being developed without laying any new burden on current residents, we simply must take that opportunity.”
Of course since the NFIP is a government program, any changes to its policies and funding must be passed by the House and the Senate through reauthorization bills. Those bills become more difficult to get passed during election years, which means the NFIP may not see these necessary changes for at least a year. Time will tell.