Even though a major hurricane has yet to make landfall this season, 2025 has been a year of devastating floods. Thousands of flash floods across the country this summer sent torrents of water into people’s homes, swept away cars, knocked down trees, and ripped bridges away. Floods over the July 4 weekend in Central Texas killed at least 135 people and caused upward of $22 billion in damages according to one estimate.
Though lost lives can never be recovered, the US has long had a program designed to help surviving homeowners financially devastated by floods. But at a moment when so many are trying to return home and the costs of flood recovery are rising, the National Flood Insurance Program is sinking deeper into the red.
Earlier this year, the program borrowed $2 billion from the US Treasury to help cover claims from major storms in 2024 like Hurricane Helene and Hurricane Milton. Even though the program previously had $16 billion in debt forgiven in 2017 — the year Hurricanes Harvey, Maria, and Irma struck — NFIP’s total debt is now more than $22.5 billion, and is likely to rise further as claims from floods this year complete processing. And an overwhelmed flood insurance system could be devastating for the homeowners who depend on it — whether they want to or not.
Sharon Cozort said that floods were always in the back of her mind when she bought her house in Houston in 2006. “The [500-year] flood plain went right through the middle of our living room,” Cozort said. She and her husband carried flood insurance for about 25 years, paying about $100 to $500 per year, but never needed to use it. Then came Hurricane Harvey in 2017, a one in a thousand-year flood event. It dumped a gargantuan amount of water on Houston and forced the reservoir system to release water to avoid overflowing out of control, which then flooded Cozort’s house for a week.
She thought about relocating to a neighborhood outside the flood zone, or out of the city entirely. But the existence of government flood insurance made coming back the most financially viable option, if not the most comfortable one.
“My husband dragged me back to Houston kicking and screaming,” Cozort said. “The whole town was calling each other, ‘What are you going to do? Are you going to repair? Are you going to rebuild? Are you going to elevate?’ It was kind of a mass panic.”
Cozort is clear-eyed about the risks she faces and knows that the flood insurance system, as it stands, is unsustainable. It’s just that there aren’t any practical alternatives for her and her husband, who are hoping to use their home’s equity to retire and invest. For individual homeowners, there isn’t much they can do on their own to reduce the systemic flood risk for their cities, or to change the structure of flood insurance.
Meanwhile, the other parts of the country she was considering are facing their own mounting insurance costs from severe weather and wildfires. “This house will flood again,” Cozort said. “This is a new world.”
And indeed, we are living in a new world. Flooding is the most frequent and most expensive disaster in the US. More Americans are living in areas prone to flooding, even as property values are increasing and construction costs are rising, making it more expensive to rebuild after a disaster. And due to how humanity has altered the landscape and warmed the climate, the devastation of inundation is growing. “The baseline is that flood risk is definitely increasing,” said Carolyn Kousky, an insurance expert at the Environmental Defense Fund.
The current national flood insurance system was founded in 1968. Today, the federal program has 4.7 million policyholders and provides $1.3 trillion in flood coverage. Unlike other perils such as fire and earthquakes, there are few private companies willing to insure properties against floods. For the vast majority of homeowners, NFIP is the only game in town, or the only plan within their budget. The program is funded through short-term authorizations from Congress. The program is currently authorized until September 30, 2025.
The challenge for the NFIP is that it’s boxed in by mandates set by Congress that make it almost impossible for it to balance its books. NFIP must make flood insurance available to homeowners in areas that face flood risks, and it has to keep rates affordable, even as risks increase. “The tension between widespread access and being fiscally sound has been there since the beginning,” Kousky said. The federal program can’t simply jack up its prices or cut off its riskiest customers the way private companies do. It’s a crude, blunt tool for mitigating an expansive, evolving, and complicated problem.
And in many ways, the program makes the problems it’s trying to solve worse, creating a moral hazard that can encourage people to remain in flood-prone areas because they know the federal government is picking up most of the tab after a flood. “There are areas where we’re spending more to rebuild than the properties are worth,” Kousky said. These costs are shouldered by all of us, whether we’re in a flood zone or not.
But even with broad agreement that the current situation is untenable, the nation’s flood insurance is stuck in place. The Trump administration has also been slowing efforts to redraw maps of floodplains to better account for evolving risks. President Donald Trump said he was considering closing the Federal Emergency Management Agency (FEMA), which manages NFIP, leaving its future less certain. And there are signs that the administration of the program itself is shaky: Homeowners like Cozort have also reported recent hiccups in accessing NFIP’s website and communicating with the program this year, leaving them worried that their coverage may have lapsed.
Ultimately, the growing threat from floods will force a difficult political reckoning over who gets to live where and how much the rest of us should pay to protect them.
Our federal flood insurance system is its own disaster
The business model of a private insurance company is straightforward: take in more money in premiums than it pays out. However, the math of figuring out just how much to charge gets complicated fast, demanding a sophisticated understanding of hazards, exposure, economics, and human psychology.
Floods are especially difficult to insure because the damages are highly correlated. A house fire may destroy or damage several homes on a block, but a torrential downpour can flood thousands of properties at the same time. Fulfilling all those claims at once can overwhelm even a large insurance company.
Another issue is that the homeowners who most expect to see floods are the ones most inclined to buy flood insurance, while those on higher ground or outside of designated flood zones often don’t. That means the pool of properties covered by flood insurance is much riskier than the housing market as a whole, a phenomenon known as adverse selection.
Faced with these circumstances, most private property insurance companies decided the best bet was not to be in the business of providing flood insurance at all. But there are still tens of millions of people who live close to the coast or in places where rivers can swell. About 40 percent of the US population lives in a coastal county, accounting for just over one-third of the country’s economic output.
Between 1970 and 2020, the coastal US population has increased by 40.5 million people. Most banks require homes in known flood risk areas to have flood insurance in order to get a mortgage. Add to that the millions who live alongside inland rivers, low-lying farms, and valleys where the natural geography shunts water toward towns, and you have a huge portion of the US population and economy facing some type of flood risk.
The federal government stepped in to help manage some of these risks with NFIP. The goal over time was to spend less on disaster recovery by encouraging people and communities to invest in flood protection — things like levees and drainage systems — or to relocate to lower-risk areas.
But that hasn’t really happened.
Simply assessing the risks accurately as they stand today is an arduous task. The main benchmark the federal program uses is the 100-year flood zone, the regions of the US where a major flood is expected at least once every 100 years. Put another way, these are the places where there’s a 1 percent chance of a major flood in any given year.
The problem is that flood risks change over time. As we’ve built new housing developments, for example, we’ve cleared landscapes and put down more pavement, and that alters where water flows. Because of climate change, sea levels are rising, leading to more extensive coastal flooding. Hotter air can also hold onto more moisture, so severe rainfall events are pouring out more rain, increasing the intensity of flooding in some areas, including outside of tropical storms. But climate change is complex. Other parts of the country are drying out and seeing a drop in flood risk and decline in flood insurance rates.
In addition, homeowners aren’t keen to find out their house is now suddenly in a flood zone, which means they may have to buy flood insurance, their property value could drop, and if they want to sell, it could be difficult to find a buyer. That’s why some property developers have lobbied to change federal and state flood risk assessments to downplay the dangers to their real estate. On the other hand, FEMA has long been criticized for using outdated flood maps, let alone anticipating future changes in the climate.
In an attempt to resolve some of these tensions, NFIP in 2022 implemented Risk Rating 2.0, the biggest revisions to its flood mapping and risk calculations since the program was founded. While it brought flood risk assessments closer to the real world, the changes made flood insurance premiums for many homeowners more expensive, leading hundreds of thousands to drop their coverage entirely. Already, some lawmakers are calling for Risk Rating 2.0 to be repealed.
And even with this revised methodology, many observers say NFIP doesn’t adequately measure flood risks as they exist today. “We’re definitely seeing more and more flooding in places where we didn’t expect to see it,” said Jeremy Porter, chief economist at First Street, a climate risk modeling group. Porter told Vox that First Street found there are more than twice as many properties in the 100-year flood risk zone than FEMA shows.
And just because a home or business is outside of a known flood zone doesn’t mean it will never flood. Marc Ragin, an associate professor in the Department of Insurance, Legal Studies, and Real Estate at the University of Georgia, studied how flood maps can create a false sense of security. “We did a survey of small businesses in Houston after Hurricane Harvey. We flew down there and met with probably 20-25 business owners,” Ragin said. “In every conversation, we would ask them, ‘Did you have flood insurance?’ And almost every one of them said, ‘No.’ And we would say, ‘Why not?’ And they would say, ‘Well, I’m not in a flood zone.’”
FEMA did not respond to a request for comment.
How NFIP prices these risks poses another problem. While the price of insurance normally serves as a clear signal of risk — higher risk, higher premiums — a subsidized rate from the federal government’s program masks that signal.
In the case of NFIP, providing insurance policies at below-market rates reduces the incentive for people who live in risky areas to move out of flood zones, and may even do the opposite. Jonathan Scott, an assistant professor at the Jindal School of Management at the University of Texas Dallas, coauthored a paper last year that found that NFIP was actually encouraging more people to move to high-risk areas for flooding. “We’re looking at this moral hazard where if risk is priced below the actuarially fair level, it’s going to encourage an inefficient level of migration to these locations because consumers are essentially getting a bargain on this,” Scott said. “A lot of these properties were getting charged like $500 premiums when they should have been something closer to like $5,000, $10,000, or something like that.”
Parting the waters
The first step is to have a blunt, realistic assessment of the risks, particularly those exacerbated by climate change. “I would anticipate a continuing pattern of worsening storm damage from rainfall, flooding events, and also from hurricane and tropical storm events,” said Jim Blackburn, a professor in the civil engineering department at Rice University in Houston studying severe storms and floods. “I don’t think we’ve been honest about these facts about our changing risk profile.”
Getting people to take flood risks seriously, even in areas that have seen extensive floods in recent memory, has been difficult. In 2011, after Hurricane Ike, the Houston suburb of Clear Lake installed signs around town showing that storm surge could reach as high as 20 feet. But residents complained that the signs were hurting property values and they were soon taken down. Houston itself has built up thousands more properties in flood-prone areas since Harvey. The local flood control district is still using old flood maps that predate the damage revealed from the storm.
The next step is to act on these risk assessments. The Environmental Defense Fund’s Kousky said FEMA could restore and enhance grant programs that help communities mitigate risks, like restoring watersheds and building levees. Federal, state, and local governments also need to put more money toward adaptation.
It’s also important to remember insured losses don’t tell the whole story. Increasingly, Americans are facing greater flood risks in places that lack any financial protection. A 2024 working paper from the Federal Reserve Bank of Philadelphia found that 70 percent of property losses to floods are uninsured, totaling $17.1 billion in damages. Even for those who are insured, as flood policies get more expensive, more homeowners are letting their coverage lapse, and the total damage from floods is far outpacing what’s covered by insurance.
And flood insurance loss tallies mainly capture homeowners, not renters. Apartment dwellers also get displaced during floods, but don’t get as much help in relocating or returning after a disaster.
It’s also worth rethinking the role of NFIP. It may never work as a business proposition, and there’s no way around the core fact that losses from floods are growing. If NFIP charges for its policies in line with the risk, few people would be able to afford them. And if they continue to subsidize rates, homeowners will continue to live in risky areas, damages will continue to rise, and the program will keep losing money.
Should it be viewed as a public service, like the Marine Corps or the Postal Office, something that serves a purpose but is not designed to turn a profit? In that case, we may just have to let NFIP again slide on the money it owes the Treasury.
The real challenge is for states and local governments to say no to new buildings and pulling people back from existing structures in high-risk areas. In places like Florida and Texas that don’t have income taxes, the states get much of their money from property taxes, which gives state lawmakers an incentive to encourage more property development, particularly in high-value areas like riverfronts and coasts. “If you think about these communities just in terms of economic incentives, the tax revenue that they’re going to get from this high-value home that’s got this beautiful view of the water, that’s a big boon to the community,” said University of Georgia’s Ragin.
There needs to be a strong message from policymakers that building in a floodplain is dangerous. That’s not just a signal from insurance companies, but from policymakers to actively discourage and relocate people. “In my opinion, federal, state, and local policies need to be to move people out of the floodplain over time,” Blackburn said. “These areas are only going to get more and more water.”
A home is often the single most expensive thing anyone buys, and people spend years paying it off. Getting people to adapt or retreat will be a slow process, even as disaster losses continue to mount. “You have to do that in a gradual manner,” said Scott at the University of Texas Dallas. “It could take decades.” In the meantime, America’s main financial tool for dealing with floods will plummet even further underwater.
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