Modernizing the National Flood Insurance Program: A Call for Higher Coverage Limits

In an era of rising sea levels, intensifying and more frequent storms, and escalating construction values, the National Flood Insurance Program (NFIP) stands as a critical bulwark against the financial devastation wrought by flooding. Yet, as we approach the program’s 60th anniversary, it’s become increasingly clear that the NFIP’s coverage limits have failed to keep pace with economic realities, leaving millions of American property owners dangerously underinsured. The recent events from Hurricanes Helene and Milton signal that it’s time to act on the long-called-for reform of the NFIP, which includes a rise of coverage limits to reflect current property values and construction costs, ensuring that the NFIP remains a relevant and effective tool for flood risk management.

The Growing Gap Between Coverage and Costs

When the NFIP was established in 1968, its coverage limits were designed to protect the average American homeowner. Today, those same limits leave a dangerous gap between insurance payouts and actual recovery costs. The current maximum coverage of $250,000 for residential structures and $100,000 for contents falls woefully short in many areas of the country, particularly in coastal and urban regions where property values have skyrocketed.

Consider this: if we adjust the 1994 coverage limit of $250,000 for inflation, it would be worth approximately $506,348 in 2024 dollars. However, this figure doesn’t account for the fact that construction costs have typically outpaced general inflation. The reality is that rebuilding a home today often costs significantly more than what the NFIP currently allows for coverage.

The situation for commercial properties is equally concerning. With a limit of $500,000 for structures and $500,000 for contents, many businesses find themselves woefully underinsured and potentially out of business in the event of a major flood.

The current situation significantly impacts homeowners, business owners, employees and communities in an extraordinary manner—they face financial ruin from a flood event.

The Case for Higher Limits

To address these shortcomings, I propose raising the NFIP coverage limits to the following:

Residential properties: $1,000,000 for structures, $400,000 for contents

Commercial properties: $1,500,000 for structures, $1,000,000 for contents

Increased Cost of Compliance (ICC): $150,000 for residential and $250,000 for commercial properties in addition to the structure limits.

These increases are not arbitrary. They’re based on a careful analysis of current property values, construction costs, and the need for more comprehensive protection. Here’s why these new limits make sense:

Alignment with Property Values: The median home value in the United States has more than doubled since 2000. In many coastal areas, it’s common for homes to be valued well over $500,000. The proposed $1,000,000 limit for residential structures would provide adequate coverage for a much larger percentage of homeowners.
Reflection of Construction Costs: The cost of building materials and labor has surged in recent years. The proposed limits would better reflect the actual cost of rebuilding or repairing flood-damaged properties.
Bridging the Mortgage Gap: The conforming federal loan limit for 2024 is $766,550 in most areas and up to $1,149,825 in high-cost areas. The current NFIP limit of $250,000 leaves a significant portion of many mortgages unprotected. The proposed increase would better align flood insurance coverage with federally backed mortgage amounts.
Adequate Protection for Businesses: Many commercial properties, especially in urban areas, are valued well above the current $500,000 limit. The proposed $1,500,000 limit would provide more comprehensive protection for businesses, helping to ensure faster recovery after flood events.
Realistic ICC Coverage: The current ICC limit of $30,000 is insufficient to cover the costs of elevating a structure or implementing other flood mitigation measures. Just the cost for mitigation of a residential structure, particularly the costs to elevate the structure, is easily three to five times the current $30,000 limit. Increasing this to $150,000 for residential and $250,000 for commercial properties above the structure limits would provide insured property owners with the resources needed to comply with current building codes and reduce future flood risks. Raising this coverage limit allows policyholders to build up and reduce future losses rather than leaving their property vacant and non-conforming. This is a true win-win proposition.

The Broader Benefits of Reform

Raising NFIP coverage limits isn’t just about protecting individual property owners; it’s a move that could yield significant benefits for communities, the economy, and taxpayers at large.

Reduced Reliance on Federal Disaster Assistance: With more comprehensive insurance coverage, fewer property owners would need to rely on FEMA grants and other forms of federal disaster assistance after a flood event. This could potentially save taxpayers billions of dollars in the long run. It is more equitable because it provides the opportunity for those owning structures in flood-prone areas to foot their bill of legal compliance through the insurance product rather than depending on FEMA and the general tax base to provide subsidized grants to do so.
Faster Economic Recovery: Higher insurance payouts would allow individuals and businesses the financing to rebuild more quickly after a flood, reducing economic disruption in affected communities.
Improved Community Resilience: The increased ICC coverage would provide more resources for property owners to implement flood mitigation measures and build to the new flood map requirements, thereby making entire communities more resilient to future flood events and costs.
Potential for Increased NFIP Revenue: As highlighted by a published GAO report over a decade ago, higher coverage limits generate additional premium revenue for the NFIP, potentially improving its financial stability. In non-catastrophic years, a surplus is developed because greater premiums are collected. Addressing Potential Concerns

Some may argue that increasing coverage limits could exacerbate the NFIP’s financial challenges. However, by ensuring that premiums accurately reflect the risk and increasing limits, we can modernize the NFIP while maintaining its financial stability. Unlike private insurance programs, which require policyholders to insure to value, the NFIP allows policyholders to underinsure because of coverage caps established long ago. These outdated caps are aggravating revenue premium collections, which undermine any chance of balancing the NFIP books on an actuarial basis.

Others might contend that higher limits could encourage development in flood-prone areas. However, coupling increased coverage, especially with higher amounts of ICC and tight controls over stricter building requirements, leads to more resilient development practices in these areas.

A Call to Action

The time has come for Congress to act on the longstanding requests to reform the National Flood Insurance Program. Even the NFIP has called for reform, recognizing the need to modernize its plan of operation. Raising coverage limits is not just about providing better insurance; it’s about creating a more resilient nation in the face of increasing flood risks.

To our lawmakers: I urge you to consider the compelling common-sense case for increasing NFIP coverage limits. This reform would provide better protection for property owners, reduce the burden on taxpayers, and help communities recover more quickly from flood disasters. It does not take a rocket scientist to calculate that coverage limits made 30 years ago are woefully inadequate in current dollars.

To fellow citizens: I encourage you to reach out to your representatives and voice your support for NFIP reform. While the media has reported on your stories of being unable to rebuild your homes and businesses following the recent disasters, your personal stories resonate much louder.

To those working in the Write Your Own (WYO) insurance industry as adjusters and insurance agents: I call on you to support these reforms and work collaboratively with policymakers to ensure a smooth transition to higher coverage limits. Property adjusters get no pleasure in writing estimates of damage far exceeding available coverage. Insurance agents want to provide coverage for clients in flood prone areas that provide adequate protection.

To restoration contractors:  Your expertise in rebuilding and repairing flood-damaged properties gives you a unique perspective on the true costs of recovery. I urge you to lend your voice to this cause. Share your experiences of how current NFIP limits often fall short of covering full restoration costs. Your insights can help policymakers understand the real-world implications of outdated coverage limits and the potential benefits of this proposed reform. By advocating for higher limits, you’re ensuring that property owners have the resources they need to fully restore their homes and businesses after a flood event.

To community and state leaders in flood-prone areas: You stand on the front lines of flood risk management and community resilience. The proposed increases in NFIP coverage limits offer a powerful tool to enhance your community’s ability to recover from flood events and build long-term resilience. Higher limits, particularly for ICC, could provide the resources needed to implement more effective mitigation strategies, potentially reducing future flood risks and lowering long-term recovery costs. I encourage you to advocate for these reforms to the federal government, emphasizing how they could benefit your local economies, protect your constituents’ investments, and strengthen your communities against future flood events. Your support can play a crucial role in shaping national policy to better serve flood-prone areas across the country.

The floods of tomorrow won’t wait for yesterday’s insurance limits. The time to act is now.

If you agree with the message of this article and believe in the importance of reforming the National Flood Insurance Program, I urge you to act. Share this piece with your friends, family, and colleagues, especially those living in flood-prone areas. Post it on social media platforms to broaden its reach.

Most importantly, send a copy directly to your local congressional representative. You can easily find your representative’s contact information on the official House of Representatives website. Include a personal note explaining why this issue matters to you and your community.

By amplifying this message and putting it directly into the hands of policymakers, you can play a crucial role in driving the change we need to protect our homes, businesses, and communities from the growing threat of flood damage. Remember, your voice matters and every individual effort matters.

Thought For The Day

Do what you can, with what you have, where you are.
—Theodore Roosevelt