Menus Subscribe Search

Follow us


Alarming post-Sandy Factoid: The National Flood Insurance Program is Still Broke

• October 31, 2012 • 10:53 AM

If you ever want to have a really strange conversation with a politician, ask about floods. Rising water messes up more American cities, more extensively, more often, than virtually any other kind of disaster. But we don’t talk about it.

Big Muddy swelling in ’93

From 1993, when the Mississippi nearly took out Saint Louis, and did take out chunks of Iowa, Illinois and Minnesota; to a less-heralded storm that did similar damage to Florida the same year; to the destruction of Grand Forks; to Katrina; to rivers that tore through much of the mid-Atlantic in 2005 and 2006; to Irene washing big parts of the Hudson valley away last year; to the submersion of large parts of New York City this week, floods are a real, annual threat. They’re the unsexy disaster, compared to earthquakes and twisters. But they are the one we face more often.

Most flood insurance is an extra, and it comes from a government program, the National Flood Insurance Program, which is administered by FEMA. This is because the free market doesn’t want to be in the flood business. Like earthquake insurance in the West, the market for flood insurance is an economist’s nightmare. Insuring against massive natural events wont to devour entire cities—supplemental Godzilla coverage—is not a great way to make money in the insurance game.

So you don’t. So the government has to do it, lest whole swaths of America go uninsured against one of the more common and costly natural threats.

Great. Except: again like earthquake insurance, not so many people buy the flood policies. The NFIP, which has to bear the billions in damage when the claims do come in, can’t make the arithmetic of low buy-in/high payout work. A prodigiously named 2010 study, Catastrophe Economics, by Wharton School economist Erwann Michel-Kerjan, found that the program can’t shoulder events like Sandy:

…Claims from Hurricanes Katrina, Rita, and Wilma, and other floods in 2005 pushed the operating budget of the program into a deep hole. Hurricane Katrina alone generated $16.1 billion in flood insurance payments. Between 2005 and 2008, the program had to borrow a total of $19.3 billion from the U.S. Treasury. It will be very difficult for the program to repay this debt: total annual premiums for the program are about $3.2 billion and interest payments alone on the debt are nearly $900 million. In some sense, the debt accumulated after the 2005 losses just confirms what was known since the inception of the National Flood Insurance Program: it is designed to be financially self-supporting, or close to it, most of the time, but cannot handle extreme financial catastrophes by itself.

So, it’s broke. Specifically, as Sandy headed north last weekend, the flood insurance system covered nearly $2 trillion in property, and on the other side of the ledger, was $18 billion in debt to the US Treasury. At which point, a few days ago, the rain began in New Jersey.

Marc Herman

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

October 30 • 8:00 AM

How Do You Make a Living, Email Newsletter Writer?

Noah Davis talks to Wait But Why writer Tim Urban about the newsletter concept, the research process, and escaping “money-flushing toilet” status.



October 30 • 6:00 AM

Dreamers of the Carbon-Free Dream

Can California go full-renewable?


October 30 • 5:08 AM

We’re Not So Great at Rejecting Each Other

And it’s probably something we should work on.


October 30 • 4:00 AM

He’s Definitely a Liberal—Just Check Out His Brain Scan

New research finds political ideology can be easily determined by examining how one’s brain reacts to disgusting images.


October 29 • 4:00 PM

Should We Prosecute Climate Change Protesters Who Break the Law?

A conversation with Bristol County, Massachusetts, District Attorney Sam Sutter, who dropped steep charges against two climate change protesters.


October 29 • 2:23 PM

Innovation Geography: The Beginning of the End for Silicon Valley

Will a lack of affordable housing hinder the growth of creative start-ups?


October 29 • 2:00 PM

Trapped in the Tobacco Debt Trap

A refinance of Niagara County, New York’s tobacco bonds was good news—but for investors, not taxpayers.


October 29 • 12:00 PM

Purity and Self-Mutilation in Thailand

During the nine-day Phuket Vegetarian Festival, a group of chosen ones known as the mah song torture themselves in order to redirect bad luck and misfortune away from their communities and ensure a year of prosperity.


October 29 • 10:00 AM

Can Proposition 47 Solve California’s Problem With Mass Incarceration?

Reducing penalties for low-level felonies could be the next step in rolling back draconian sentencing laws and addressing the criminal justice system’s long legacy of racism.


October 29 • 9:00 AM

Chronic Fatigue Syndrome and the Brain

Neuroscientists find less—but potentially stronger—white matter in the brains of patients with CFS.


October 29 • 8:00 AM

America’s Bathrooms Are a Total Failure

No matter which American bathroom is crowned in this year’s America’s Best Restroom contest, it will still have a host of terrible flaws.



October 29 • 6:00 AM

Tell Us What You Really Think

In politics, are we always just looking out for No. 1?


October 29 • 4:00 AM

Racial Resentment Drives Tea Party Membership

New research finds a strong link between tea party membership and anti-black feelings.


October 28 • 4:00 PM

The New Health App on Apple’s iOS 8 Is Literally Dangerous

Design isn’t neutral. Design is a picture of inequality, of systems of power, and domination both subtle and not. Apple should know that.


October 28 • 2:00 PM

And You Thought Your Credit Card Debt Was Bad

In Niagara County, New York, leaders took on 40-year debt to pay for short-term stuff, a case study in the perverse incentives tobacco bonds create.



October 28 • 10:00 AM

How Valuable Is It to Cure a Disease?

It depends on the disease—for some, breast cancer and AIDS for example, non-curative therapy that can extend life a little or a lot is considered invaluable. For hepatitis C, it seems that society and the insurance industry have decided that curative therapy simply costs too much.


October 28 • 8:00 AM

Can We Read Our Way Out of Sadness?

How books can help save lives.



October 28 • 6:15 AM

Incumbents, Pray for Rain

Come next Tuesday, rain could push voters toward safer, more predictable candidates.


October 28 • 6:00 AM

Why Women Are Such a Minority in Elected Office

The obvious answers aren’t necessarily the most accurate. Here, five studies help clear up the gender disparity in politics.


October 28 • 4:00 AM

The Study of Science Leads to Leftward Leanings

Researchers report the scientific ethos tends to produce a mindset that favors liberal political positions.


October 28 • 2:00 AM

Who Funded That? The Names and Numbers Behind the Research in Our Latest Issue

This list includes studies cited in our pages that received funding from a source other than the researchers’ home institutions. Only principal or corresponding authors are listed.


Follow us


We’re Not So Great at Rejecting Each Other

And it's probably something we should work on.

Chronic Fatigue Syndrome and the Brain

Neuroscientists find less—but potentially stronger—white matter in the brains of patients with CFS.

Incumbents, Pray for Rain

Come next Tuesday, rain could push voters toward safer, more predictable candidates.

Could Economics Benefit From Computer Science Thinking?

Computational complexity could offer new insight into old ideas in biology and, yes, even the dismal science.

Politicians Really Aren’t Better Decision Makers

Politicians took part in a classic choice experiment but failed to do better than the rest of us.

The Big One

One town, Champlain, New York, was the source of nearly half the scams targeting small businesses in the United States last year. November/December 2014

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.