What Recent Hurricanes Mean for Flood Insurance in California

Three exceptional hurricanes—Harvey, Irma, and Maria— caused staggering damages from floods, winds, and storm surge in recent weeks. It’s likely they will make the record books as the most costly natural disasters in US history.

Although California doesn’t get hurricanes, it does get large storms (called “atmospheric rivers”) that can be just as damaging to people and property. Currently, one in five Californians and close to $600 billion worth of structures are vulnerable to flooding.

One way for residents and businesses to reduce the financial risks of flooding is to carry insurance. Millions of Californians depend on the National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA). But at almost 50 years old—and facing an uncertain reauthorization this December—it has many problems.

The most immediate concern is the imbalance between premiums and claims. Currently, the NFIP is more than $25 billion in debt―a figure that will certainly grow once all the recent hurricane claims are processed.

“The program never charged prices that would cover a year like Hurricane Katrina, where it paid out more than it had over the life of the program.  And the string of storms since then—Ike, Sandy, and now Harvey, Irma, and Maria—have only worsened its debt,” says Carolyn Kousky, director of policy research for the Wharton Risk Center and a member of the PPIC Water Policy Center research network.  “Realistically, the program will not be able to repay this debt, so the best thing may be for Congress to simply forgive it, while also putting in place a new approach to pay for catastrophic events.”

Another problem is that too many people at risk of flooding do not enroll in the program. In Houston, approximately 80% of Harvey-flooded homes were not insured.  And here in California, just 10% of flood-prone Sacramento county households and only half of those in high-risk areas have flood insurance.  Among the reasons so few people purchase insurance, Kousky says, are “unwillingness or inability to pay, a misunderstanding about the role of insurance, an unsubstantiated faith in disaster aid, and importantly, no information or even misinformation on flood risks.”

Inadequate perception of risk stems, in part, from the way FEMA maps flood hazards and mandates insurance. Currently, FEMA requires (but does not sufficiently enforce) flood insurance for homes with a 1-in-100 chance of flooding in any given year (the so-called 100-year flood). For homes in the floodplain but out of this high-risk zone, insurance is optional.

Nicholas Pinter—the associate director of the UC Davis Center for Watershed Sciences and a member of the PPIC Water Policy Center research network―notes that this gives a false impression that those outside this zone are safer than those within it. His laboratory found that roughly half the flooding from Harvey was outside of Houston’s 100-year floodplain zone.

“The picture in California is much better than in Texas,” Pinter says. “But updating flood maps here still takes many years, and California still largely works within FEMA’s framework of the ‘all or nothing’ 100-year floodplain.”

But the state may not be getting a good deal from the NFIP.  According to Pinter, California pays much more into the program than it is getting back.  He notes that California has gotten just 14 cents in return for every dollar of premiums paid.  The Central Valley—the most flood vulnerable area of the state—got just 9 cents per dollar.

“For a variety of reasons, California may be overpaying for its actual flood risk,” Pinter suggests. “The state needs to explore whether it is cheaper to develop its own flood insurance program and to invest the savings—estimated to be at least $150 million per year—in reducing flood risk across California.”

With this year’s unprecedented string of flood disasters and uncertainty for national insurance, it’s time for real policy reforms to ensure Californians are prepared to weather the growing risk of floods. Fixing our flood insurance problems is one way to start.