Lessons from Hurricane Sandy for Flood Risk and Flood Insurance

October 28, 2013
Rachel Cleetus
Policy Director

Hurricane Sandy caused record flooding along the coasts of New Jersey, New York, and Connecticut, much of it resulting from storm surge. Sea level rise means that these kinds of storm surges are now riding on elevated water levels so that their destructive power extends higher and farther inland. Coupled with growing population and development along our coasts, major storms are creating increased risk for coastal residents – and threatening the financial solvency of the taxpayer-backed National Flood Insurance Program.

Rethinking flood insurance in a world of rising seas

This is one of a series of posts highlighting issues related to the October 29, 2013 forum, Sandy, One Year Later: Looking to the Future.

Last August, UCS released a report pointing out that the National Flood Insurance Program’s (NFIP’s) artificially low premiums and unfair subsidies are reinforcing risky patterns of development along our coasts, including in New Jersey. Instead of communicating true flood risks to coastal homeowners and small businesses, it is in some cases creating a false and potentially dangerous sense of security. We urgently need to reform our insurance system to more effectively manage and reduce these coastal risks — risks that are projected only to grow in a warming world.

The NFIP is now almost $30 billion in debt as a result of claims from major storms including Hurricanes Katrina and Sandy. Most experts believe the program will not be able to pay off this debt to the U.S. Treasury, especially without significant reform. Taxpayers nationwide will likely have to absorb this cost.

Delaying reforms to the NFIP would be a mistake

In July 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act in a bipartisan effort to stabilize the financial outlook for the NFIP by phasing in premiums that reflect true flood risk to properties and by phasing out unfair subsidies and grandfathering provisions. As the legislation has started to go into effect, premiums for some coastal residents are increasing. In some cases this is because long-standing subsidies are being removed, and in other cases because FEMA is updating flood risk maps and the legislation requires rates to reflect the latest maps. Clearly, this has come as a shock to some homeowners.

Some policymakers in coastal states, who in many cases voted for Biggert-Waters, are now proposing legislation to delay or rescind the legislation. Delaying reform of the NFIP indefinitely would be a mistake. Artificially low rates fail to communicate the true risk of building and rebuilding along our coasts and they will put more people and property in harm’s way. It would be disastrous to keep doing things the way we always have, especially with worsening storm surge and flooding coming our way.

Congress should definitely address affordability concerns for low income and fixed income homeowners. One option could be adding in a voucher or rebate program, potentially accompanied by loans or grants for homeowners to invest in flood-proofing measures, as a recent proposal by RFF and Wharton outlines. This is where attention needs to be focused, instead of undermining the entire program of necessary and overdue reforms.

We cannot legislate a delay in sea level rise

Policymakers must realize that, while they can always overturn rate increases, they cannot turn back the clock on sea level rise. The East and Gulf coasts of the U.S. are experiencing some of the fastest and highest rates of sea level rise in the world.

Putting the interests of their constituents first means ensuring that they are fully aware of the risks they face and have the scientific information and resources to help prepare for them. Coastal residents need more options, whether that includes more resources for flood-proofing (which can also help lower insurance premiums) or more widely available voluntary home buyout programs in some of the highest flood risk areas.

Further, Congress needs to take steps to ensure that provisions in Biggert-Waters that are designed to help FEMA incorporate sea level rise projections in its future flood risk maps are actually funded and implemented in a timely way. (Current flood risk maps, even the new ones being rolled out in New York and New Jersey to help guide post-Sandy rebuilding, do not take into account sea level rise projections.)

Using federal assistance for Sandy recovery to rebuild more resiliently

Estimates put the payouts from the National Flood Insurance Program (NFIP), the taxpayer-backed federal program, at somewhere between $12 billion and $15 billion. Separately, private insurance losses will likely approach $19 billion. In addition, Congress passed a $50 billion Sandy Relief bill to fund disaster relief efforts. New Jersey has received $5.6 billion in federal aid to date, including $3.5 billion from the NFIP and $2.1 billion in federally-funded grants and loans to households, individuals, and businesses. New York has received more than $8.3 billion, including $3.7 billion in NFIP payouts, $2.5 billion in grants and loans for individuals and businesses, and more than $2.1 billion in grants to state and local entities.

All this aid cannot make up for the loss of lives and the long, painful recovery that Sandy’s victims face. But it does provide an opportunity to invest in rebuilding in a more resilient way so, hopefully, we’ll be better prepared for the next storm. In fact, it is an opportunity that we simply cannot waste.

Leadership from Governor Christie and other coastal state policymakers

Governor Christie has done a lot to help his state’s residents recover and rebuild stronger in the wake of Sandy. Last August, he showed great leadership in vetoing a bill that would have allowed high-risk development along New Jersey’s piers and jeopardized the state’s eligibility to participate in the NFIP. Governor Christie also recognizes the reality of climate change (scroll to 0:41:15 in that link). Governor Cuomo is also undertaking an ambitious program of recovery through the NY Rising initiative.

As I said in a recent commentary, ‘Governors Christie and Cuomo clearly recognize these new post-Sandy realities, and must be part of a vanguard of coastal state policymakers who not only spearhead long-term plans to help their communities, but also galvanize a national conversation about the policies and resources needed to address climate change. The fact is our carbon emissions from burning fossil fuels are warming the world and causing worsening impacts. We must cut these emissions sharply, even as we prepare for the changes that are already coming our way.’