National Flood Insurance Program Running Out of Money

global finance

Houston, we have a problem. The destruction that Hurricane Harvey rained down on the Texas and Louisiana coast poses new problems for the National Flood Insurance Program.

The popular program has roughly five-million policyholders across the country, but is saddled with $25.0 billion in debt from other storms. The program also has less than $6.0 billion in its coffers, which could undermine its effectiveness in dealing with claims resulting from Hurricane Harvey.

The National Flood Insurance Program, which is managed by the Federal Emergency Management Agency (FEMA), was created in 1968 because private insurance companies were not willing to risk catastrophic flood losses. Thanks to mounting debt, the National Flood Insurance Program could be inundated with billions of dollars in new claims following Hurricane Harvey’s Category winds and rainfall.

The U.S. program has just $5.8 billion left that it can borrow from the Treasury to meet new claims. Most Americans but the government policies through private-sector insurers who are then compensated for that service.


The program is also due to expire in September, which pits the National Flood Insurance Program in a showdown in Congress. The program was extended 17 times between 2008 and 2012 and lapsed four times during that period. In 2012, a law extended the program to September 2017.

The National Flood Insurance Program already owes nearly $25.0 billion to the U.S. Treasury, most of that covered claims from Hurricane Katrina in 2005 and Superstorm Sandy in 2012; Sandy alone cost $8.4 billion. It is also attributable to floods in 2016, the program’s third-biggest year for payouts, exceeding $4.0 billion.

In January of this year, the National Flood Insurance Program had to borrow an additional $1.6 billion from the Treasury just to pay interest on its debt and storm claims.

Hurricane Harvey is adding to that debt load. More than 200,000 homes along the Texas coast are at risk. In Texas, 30 counties have been labeled disaster areas by the state’s governor. In these areas, there are 450,000 National Flood Insurance Program policies covering $125.7 billion.

Members of Congress are facing a dilemma on how to restore the program without hiking rates, which are kept artificially low. Democrats are in favor of forgiving the flood program’s $25.0-billion debt, but Republicans oppose this move. Instead, they want to focus on the program’s $1.5-billion annual deficit and are not ready to address its ballooning debt.

If Congress, which returns from recess on September 5, cannot agree on how to restructure the program, it can extend the program again to avoid a lapse.


The National Flood Insurance Program,” Federal Emergency Management Agency, last accessed August 28, 2017.

CoreLogic Analysis Shows More Than 200,000 Homes in Texas at Potential Risk of Storm Surge Damage from Hurricane Harvey,” CoreLogic, Inc., August 24, 2017.


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