Encouraging greater flood insurance coverage

On March 10, 2023, Brookings Metro David M. Rubenstein Fellow Carlos Martín testified before the House of Representatives Financial Services Committee’s Subcommittee on Housing and Insurance for a hearing titled “How Do We Encourage Greater Flood Insurance Coverage in America?” 

As Americans and their homes face increasing flood risks as a result of climate change, Martín’s testimony focused on the barriers residents face in obtaining stronger flood insurance coverage. Since the creation of the National Flood Insurance Program (NFIP) in 1968, there has been an increasingly poor mismatch between its policy rates and actuarial risks. Reforms by Congress and the Federal Emergency Management Agency (FEMA) have improved the program’s ability to reflect flood risk more accurately, but they have also foregrounded the affordability and access concerns that consumers now face.  

In his written testimony, Martín identified six obstacles to the widespread adoption of flood insurance and how to overcome them. 

1. Unaffordability. Flood insurance is expensive, so the creation of a well-designed, means-tested assistance program for low-income property owners with high-risk properties could more efficiently help households burdened by NFIP rate increases and expand the marketplace for any provider at the same time.
2. Awareness. Many consumers have limited awareness of their actual flood risks and may not see the need to purchase insurance if it is not required. Moreover, highly vulnerable groups such as renters have little to no information or support for their housing decisions. Better property disclosures and user-friendly information channels would help households make more informed decisions.
3. Regulatory requirements. Federal institutions that require flood insurance may not have clear, consistent, and enforced requirements, especially for the future flood risks that are material to homeowner exposures but not integrated into terms of a 30-year mortgage. Updates to reporting and fiduciary regulations for consumer financial products for which flood risk is relevant could lead to increased coverage and better integration of consumers’ financial tools.
4. Lack of clear information. Consumers are often in the dark about their own individual coverage. A national insured’s “Bill of Rights”—with understandable and uniform coverage, premium, and treatment information, including clear language about all policies for a property—could increase homeowners’ awareness of coverage gaps and lead them to purchase more and better flood policies.
5. Poor mitigation. One clear way to reduce the price of flood insurance is to reduce the risk of flooding. We have massively underfunded mitigation at both the property and infrastructure levels, particularly in vulnerable communities. More resources for federal mitigation programs would make offering flood insurance a sounder proposition for all carriers.
6. Data gaps. Finally, the lack of transparent data on properties, property owners, and their respective insurance policies prohibits a sound assessment that can inform critical policy questions such as the one posed in this hearing’s title. Open data is necessary to measure disparities between policy holders by price, coverage, and treatment, as well as ensure that federal decisions lead to fair, efficient, and effective outcomes. Centralized national reporting requirements, akin to mortgage disclosure data, would support monitoring, evaluation, and corollary research. 

Flood insurance is a critical tool in making our homes, households, and communities safe, Martín concluded. Yet as the risks grow each year, there is much more the federal government and insurers need to do to expand access to that tool equitably, efficiently, and effectively.