The Environmental History The National Flood Insurance Program (1968-2019): A Malignant Growth of Risk
Hurricane Harvey caused the National Flood Insurance Program (NFIP) to fall into debt around the amount of $20 billion. Although the NFIP managed to remain sustainable through the new age of superstorms like Sandy and Katrina, neoliberals rallied around this federal debt as an excuse for proposing improvements. A victim of nothing but their own success, the NFIP and its advantageous policy in prompt relief along with favored subsidized flood insurance was becoming an item of increasing expensive to the federal budget. Juggling the success of the program and budget demands, Congress decided to reauthorize the program under new pretenses of bureaucratic control. The question of affordability and feasibility for the U.S. flood policy was pushed with questions like risk assumptions, award qualifications, and price.
The NFIP has been ever-expanding its base of policyholders. Hand in hand, the inflow of subsidized premiums grew with the outflow of policy claims. A sharp increase in risk-prone coastal regions demanding participation caused a halt in land use limitations and promised flood mitigations. The program faced a new challenge of paying uncertainty claims on potential risk properties. Therefore, the NFIP was hindered by outcomes of constituent forces. From its genesis to now, the NFIP was shaped by concrete events, local interest, and real estate development. This exemplified the political strain of socializing deficit, subsidizing coverage, increasing the risk pool, and charging rates that aim at properly reflect risk.
The NFIP was created to amend for the private market’s failure to cover against flood uncertainties, especially after Mississippi River flood in 1927. The Truman and Eisenhower administrations attempted and failed, but several factors merged to make the program feasible under president Johnson. In the 1960s, a decreased interest in nuclear power and civil defense preparation yielded the government to turn its safety mission to focus on natural disasters. The relief overhead of America’s first billion-dollar storm (Hurricane Betsy, 1965), the largest recorded earthquake, and the tsunami (9.2 magnitude, Alaska, 1964) showed an urgency for policy on national risk impediment and insurance. This policy would result in a nonviable agreement in which flood risk was insured at a level that was uninsurable (Dacey, 42). Demand for coverage was finally met by Congress in 1968 as the National Flood Insurance Act was passed. This created a product for Americans who were excluded from private coverage which was federally sponsored and subsidized.
The program’s development has been knit closely with a population shift to vulnerable properties along the coasts. Texas has grown by 226 percent since Since 1950 as has Florida by 579 percent (Hobbs, 28). Some East Coast states have grown in population as well: Delaware, Maryland, New Hampshire, Virginia, and Georgia. In 2010, 123 million people (39 percent of the total population) lived in counties on the coast, making a 40 million increase since 1970 (National Oceanic).
Over the past decade and a half, America has experienced nine of the ten most expensive tropical cyclones to date, costing $765.3 billion in damage and 5,890 lives (NOAA). Excluding the $124.7 billion in mainland riverine and flash flooding costs experienced since 1980, tropical cyclone-related flooding, which primarily affects the populous coasts, has dominated total natural disaster costs, accounting for almost 55 percent of total damages: $919.7 billion total, with an average cost of almost $22 billion per event (NOAA).
The estimated expense of hurricane damage has most directly implicated FEMA aid, but total insured losses are more appropriate for considering NFIP, which assumed responsibility for $58 billion in flood losses in the United States in 2012 alone (Munich). Flood losses have continued to rise sharply after Harvey, Irma, and Maria. The program’s increasing vulnerability has been compounded by rising sea levels forecasts, increasingly frequent hurricanes, and a longer tropical seasons. Intensifying destruction portends a more expensive and uninsurable future. The political erosion of sound public policy, chiefly the exchange of mass subsidized flood insurance for community-run mitigation, has led to the rise of actuarial fair rates. This history of NFIP has reflected the material pressure of an ominous future forecast on America’s populous shorelines (NOAA).
By December 2012, NFIP had sold over 5.5 million policies in twenty thousand communities, $1.28 trillion of coverage mostly in coastal states. Florida and Texas comprised 40 percent of the entire program. A 2013 FEMA study predicted 80 percent growth by 2100 (24 percent due to population growth and 56 percent due to climate change) (AECOM).
This growth required and equal and opposite growth in claims. Hurricane Katrina (2005) cost $18 billion in payouts. NFIP accordingly extended its U.S. Treasury debt from $1.5 to $20.775 billion (Emergency Supplemental). After Hurricane Sandy (2012), the program borrowed $30 billion (Erwann O. Michel-Kerjan). As mentioned earlier, debt after Harvey (2017) claims approximated $20 million. Catastrophic losses exposed the program’s organizational issues: the political uncertainty of stopgap reauthorizations, the coverage of “repetitive loss properties,” the legal challenge of grandfathering, the accuracy of floodplain maps, the enforcement of construction codes, and the reform of floodplain management policy.
The Biggert-Waters Flood Insurance Reform Act of 2012 overhauled the program (Senator Mary Landrieu). Flood maps were updated, building codes were enforced, subsidies were reduced, and premiums were adjusted to reflect actuarial risk. But backlash from homeowners and industry abruptly reversed the legislation with the Menendez-Grimm Homeowner Insurance Affordability Act of 2014. How Menendez-Grimm counterposed Biggert-Waters and how various reforms and disasters interacted throughout the NFIP’s inception and history provide an insight into the role of flood insurance in modern politics and federal bureaucracy. The dance between catastrophic losses and the demand for insurance, the socialization and privatization of risk, and the dual use of prevention and relief have laid the groundwork for flood insurance policy before Hurricane Harvey.
Natural Disaster v. Civil Defense
Since the nineteenth century, the federal government has been involved in disaster mitigation, usually on a case-by-case basis of relief. The principle of aid was based on the “general welfare clause” (Dauber). The first federal research into environmental risk was through New Deal programs of the 1930s; World War II, the Korean War, and the Cold War military industrial complex provided the bureaucratic infrastructure to enact disaster policy based on those studies and projects. The presidential power to declare an emergency, created to prepare for the coming nuclear Armageddon, became a routine natural disaster relief measure (Knowles).
Policymakers researched extensively into the plausible use of disaster insurance and land use economics to create a federal program (Grossman). The “dual use” philosophy was not challenged until the natural disasters of 1964 and 1965 pushed politicians to prioritize disaster preparedness. Ironically, it was the research findings of the Alaskan earthquake of 1964 that set defense tailspinning out of the national perception of risk (Knowles).
The Second Environmental Crisis
The increasing costs of natural disasters necessitated a collaboration of geographers, urban planners, economists, engineers under the subdisciplines of “hazard research.” A pioneer of flood hazards and geographer, Dr. Gilbert White, recommended: dam and drainage projects, land-use restrictions, and flood insurance (White). White and the hazards researchers were engaged in the emergent “second environmental crisis” (the first crisis was pollution, popularized by Rachel Carson in 1962). The United States was increasingly conscious of the impacts of urban industrialization, but not yet awakened to the impacts of unbridled suburbanization and land use (Carson). White’s focus on the latter is especially understandable today, and emphasized the need for public policy proposals like a national flood insurance program (Wright).
The Birth of NFIP
Flood coverage was available on the private market between 1895 and 1927, but as previously mentioned, was discontinued (Abbott 136). President Truman unsuccessfully called on Congress to legislate a federal system in each year of his second term (FEMA). President Eisenhower succeeded briefly in 1956, but lacking proper risk information, the program was discontinued within a year (FEMA, 6). Following the inundation of Louisiana, Florida, and Mississippi, especially New Orleans by Hurricane Betsy, Congress passed the Southeast Hurricane Disaster Relief Act of 1965, the “sixth law passed in 18 months” to relieve natural disasters, as President Johnson noted (Knowles…American Institutes). The funds were limited to $70 million, for: the reconstruction of highways and public works, the sale of trailers to impacted property owners, the forgiveness of small business loans, and the issuance of new loans for crop damage. Crucially, the law included:
An immediate study of alternative programs which could be established to help provide financial assistance to those suffering study property losses including alternative methods of Federal disaster insurance, as well as the existing flood insurance program…(Public Law. 89-339).
During a speech in Austin, Texas, Johnson praised and expanded on the role of Housing and Urban Development in the scope of the law:
Assistance…including but not limited to disaster insurance or reinsurance…developing a workable program of protection for property owners in disaster areas either by extending the insurance plan of pooling the risks or by joint Federal-State sharing along with the private owners the cost of losses arising from uninsurable risks (Lyndon B. Johnson).
White headed the commissioned report, which in 1966 recommended a comprehensive and coordinated approach to risk and floodplain development (A Unified National). At a time when only 5 percent of Americans lived in flood hazard areas, geographers and “hazard researchers” were cautious, forewarning:
Nature of course will always exact some price for the use of her floodplains but what price is reasonable for an organized society to bear? This is discussed at some length in the report and a number of value? able suggestions are made of meeting loss through insurance schemes. In some cases, of course, floodplains should be completely evacuated; in others calculated risks may justify occupation. No area can ever be completely protected and this point is often lost to a public unfamiliar with the basic facts of physical geography.
Studies of flood-plain use show that some floodplain encroachment is undertaken in ignorance of the hazard, that some occurs in anticipation of further Federal protection, and that some takes place because it is profitable for private owners even though it imposes heavy burdens on Society. Even if full information on flood hazard were available to all owners of flood-plain property (a service not yet instituted) there would still be conscious decisions to build in areas where protection has not been feasible, for the private owner may not perceive the hazard in the same way as the hydrologist and he does not expect to bear all the costs of his use of hazardous pro? perty. Only too often he expects State or Federal help when things go wrong (Balchin).
The scientific consensus was that an expansive data-collection and accounting apparatus would enable informed local planning decisions. White proposed that the U.S. Army Corps of Engineers would compile extensive flood data at the local level; the United States Geological Survey would charter floodplain maps using flood gauges, aerial photography, and historical records; and The Water Resources Council would advise local development commissions (A Unified National 21-26).
Data, maps, actuarial tables, and analytical risk models were essential to the viability of the national program; without them, the federal government was not able to disincentivize risky real estate investments. The dual purpose, insurance relief and land use restrictions, was paramount. The report noted:
A flood insurance program is a tool that should be used expertly or not at all. Correctly applied, it could promote wise use of floodplains. Incorrectly applied, it could exacerbate the whole problem of flood losses.
For the Federal Government to subsidize low premium disaster insurance or provide insurance in which premiums are not proportionate to risk would be to invite economic development in floodplain areas. Further, insurance coverage is necessarily restricted to tangible property; no matter how great a subsidy might be made, it could never be sufficient to offset the tragic personal consequences which would follow enticement of the population into hazard areas (Knowles).
In the spirit of Great Society reform, executive action swung into motion. In 1966 President Johnson directed twenty-six federal agencies to promote “public awareness of and knowledge about flood hazards…and flood proofing measures,” to “take flood hazards into account when evaluating plans,” and to “encourage land use appropriate to the degree of hazard” (Johnson). In 1967 the U.S. Geographical Survey authored a gargantuan study on the volume and incidence of floods. In 1968 the Corps of Engineers estimated that there were five thousand flood-prone communities in the United States. In 1968, the Water Resources Council outlined the standard delineation of floodplains: the “100-year flood” (a flood with a 1 percent chance of occurring in any given year) was used as the base for a system of evaluating an area’s risk (Wright, 25).
The insurance industry, eager to participate in a lucrative subsidized product, lobbied for an industry pool (oligopoly) and federally appropriated coverage of losses (Kunreuther). Likewise, there was bipartisan support for that arrangement in the National Flood Insurance Act of 1968, which created the Federal Insurance Administration (FIA) to administer NFIP under the Department of Housing and Urban Development (HUD). White had cautiously condoned the NFIP on an “experimental pilot basis,” but FIA director George Bernstein, plunged ahead (Wright).
Coverage was voluntary at first. Grandfathering as many properties as possible, the program heavily subsidized homes and businesses in pre-existing flood zones. No penalties were charged for flood history. New constructions were charged actuarially fair rates in exchange for building code compliance and and land-use regulation. A community’s eligibility depended on an assessment by the Corps of Engineers. The resulting “flood insurance rate maps” (FIRMs) and “flood hazard boundary maps” (FHBMs) allowed HUD actuaries to charge fair rates.
Seeking to expand the risk pool rapidly, the program incentivized a short sign-up period by reducing a homeowner’s eligibility proportionally to the delay after qualifying for assistance. The assumption was that once a community learned about the subsidized premiums they would eagerly demand local flood mitigation projects in order to achieve eligibility. Both of these measures failed.
Neither assumption held true. Communities were sluggish in qualifying and even when they did, homeowners were reluctant to purchase policies. According to analysts, the NFIP “appeared to be strong on paper, [but] proved to be weak in actual implementation” (Anderson 582) The insurance industry responded by organizing the National Flood Insurers Association, eighty-nine companies that backed the operation with $42 million in capital (Felton).
Pressure mounted from other private interests: real estate was wary of falling property values, construction was eager to relax land use restrictions, and municipalities interests wanted to sustain tax revenues. The Corps of Engineers were discouraged from labeling certain zones “special flood hazard areas” (SFHAs), a designation which cost local interests dearly if they wanted to remain eligible. The choice between restricting growth and chancing a flood was a no-brainer for short-term private interests. Real estate developers only held the properties for short periods of time. Municipal governments were short-term operations with tight budgets. Floods were beneficial, even, to construction profits.
Only two communities were participating in the program when Hurricane Camille hit the Gulf Coast in 1969, killing 259 people and causing $1.4 billion of damages. Only two more joined afterwards. In response, Congress passed the St. Germain Amendment, allowing unmapped communities to participate in NFIP, lowering the application period from nine months to three weeks (Wright). The program gradually increased its membership to 154 new communities (5,500 policies) by mid-1970 (Anderson 584).
Jumpstarting the Program
Tropical Storm Agnes, killing 128 and causing $12 billion in damages, stressed the NFIP even further in 1972. Only 1,200 of 13,600 eligible communities were participating, only 95,000 policies were effective, only $12 million of the damages were covered, and only a quarter of those were paid out in claims (Anderson 585-586). The Flood Protection Act (FPA) of 1973 further resuscitated the program; flood coverage was required for all federally backed mortgages and post-disaster relief for properties located in floodplains. By the end of the year, about 2,900 out of the 21,000 eligible communities, only 274,000 policies had entered the program (Ginsberg). The 1974 Disaster Relief Act strengthened the last measure of (FPA), requiring communities that benefited from reconstruction to mitigate natural hazards, to purchase coverage; in exchange, special flood hazard area properties were grandfathered in.
Finally, the mid-1970s saw growth in applications; the pull factor of subsidized premiums and the push factors of required coverage and increasingly intense storms pushed homeowners and communities to seek an “insurer of last resort” (Moss).