Climate Change’s Reckoning with the National Flood Insurance Program

It shouldn’t come as a surprise that the subsidized national flood insurance program is under increased strain due to impacts from climate change and the limited evolution of the program. The current solution is simply insufficient to address the growing problem and only getting worse. 

The history of nationalized flood insurance

In 1968 Congress created the National Flood Insurance Program (NFIP) under Federal Emergency Management Agency (FEMA). The noble goal was, and still is today, to reduce the impact of flooding across the country by 1) providing flood insurance to property owners who live in communities that adopt and enforce floodplain management standards and 2) developing and implementing those standards. From 1968 to 2004 this program worked, it encouraged community action and more individuals to get insurance, voluntarily, and the program was able to pay out claims from the premiums it collected. 

NFIP and Debt

However, the economics changed in the early 2000s. The number of policies in force had grown from about 2 to 2.5 million in the 80s and early 90s to 4.5 million as more communities were being impacted by storms and signing up for the program. In 2001 Tropical Storm Allison hit and resulted in over a billion dollars in payouts from the NFIP, this was followed by Hurricane Isabel ($492M) in 2003 and Hurricane Ivan ($1.6B) in 2004. NFIP could have likely recovered if there had been a few calm years, but in 2005 Hurricanes Katrina ($16.3B), Rita ($465M), and Wilma ($362M) all hit. Congress increased the NFIP’s borrowing limit from $1.5 billion to over $20 billion.

The following three decades have reinforced the message. The program’s borrowing limit was increased to over $30 billion in 2017 and today the NFIP has paid $5 billion in interest alone since 2005.

To be clear, none of the numbers mentioned above include government funding for disaster recovery, private insurance claims, uninsured losses, or the incalculable loss of life and livelihoods.

Change is coming

Today (October 1st) rates change for NFIP policyholders and will increase even more for new applicants. This is an overdue effort to update premium rates to be more closely aligned with a subject property’s risk. Climate change is calling for a reckoning. Updating the program is the right move but the impacts are hard to quantify with the rate analysis that FEMA and the NFIP have provided. Based on analysis from Delta Terra and risQ the update could increase premiums as much as 3x overnight. Their analyses also illustrate the economic and racial inequality that may only be exacerbated by these updates. 

What’s next

This reckoning is long overdue.  We must rethink how we better align insurance incentives when designing products, collecting better data to understand how our infrastructure is impacted, and considering the impacts on all citizens. This is a ripe area for digital technologies to aid in the truth-telling and pricing of climate change. We’re excited to share more of what we’ve been working on soon. 


What we are…

…Reading

Do we really know what is under our city streets? We were recently reminded of this article about NYC’s underworld. The City Below

A great article about funding women fund managers and founders… and what can be done to improve outcomes, 1 change that can fix the VC funding crisis for women founders

If you are worried about your carbon footprint, your worry might be misplaced. Worrying About Your Carbon Footprint Is Exactly What Big Oil Wants You to Do

More insights on increasing costs of insuring flood-prone homes. The Cost of Insuring Expensive Waterfront Homes Is About to Skyrocket

…Watching

A new Netflix documentary brings to life the book by scientist Johan Rockström with David Attenborough to explore the many ways we are changing the Earth's biodiversity and how we can recover. Breaking Boundaries: The Science Of Our Planet

…Listening To

The Climate Pod’s discussion with Katharine Hayhoe on why talking about climate change can be so hard, why it is important, and how to approach those conversations. Healing Dangerous Climate Divisions

FiveThirtyEight dives into How Climate Models Work with two climate modelers and authors of the latest IPCC report, Friederike Otto and Baylor Fox-Kemper. Providing insights into climate models and how the IPCC report is developed using them.


Buoyant Venture Updates

Amy Francetic was recently interviewed by Chris Sass on Insider's Guide to Energy sharing investments into start-ups that use machine learning and advanced data analytics to foster new business opportunities arising with climate change mitigation and adaptation.

Allison Myers represented Buoyant at the For ClimateTech Summit 21 discussing Climate Fintech and the opportunities that we are most excited about.


For fun (since you’ve made it this far…)


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