By Lewis Nibbelin, Research Writer, Triple-I
Proposed reforms to FEMA’s National Flood Insurance Program (NFIP) would expand the role of private insurers in the flood market as part of a broader push for state and private sector participation in long-term disaster management and resilience.
Congress established NFIP in 1968, at a time when few private insurers were willing to write flood coverage. While private participation in the flood market has grown in recent years, NFIP has continued to cover more than half of all U.S. homeowners with flood insurance.
In their report released May 7, the FEMA Review Council described NFIP as “unsustainable” and “burdened by over $20 billion in debt” due to its “one-size-fits-all” approach to flood mapping, which “does not fully capture current or emerging flood hazards” on national and local scales. These shortcomings have contributed to inadequate insurance pricing and flood risk misconceptions among homeowners, exacerbating low flood insurance take-up rates in at-risk communities, the report said.
To ensure the availability of comprehensive flood protection, the report recommended establishing a depopulation program or a centralized flood insurance marketplace to shift more policies into the private market. Risk-based pricing for NFIP policyholders can also incentivize private involvement, the report said, as premiums adjust to reflect actual risk.
This transition builds upon NFIP’s Risk Rating 2.0 reforms, which aimed to make premium rates more actuarially sound and equitable by better aligning them with individual, property-level risk. As NFIP rates became further aligned with principles of risk-based pricing, some policyholders’ prices fell as many others rose, which boosted private market opportunities. Updates to the reforms based on new data could attract even greater private participation, the report said.
Private coverage gaps
Though flood was once considered an “untouchable” risk for the private market, advanced analytics capabilities and data sources have helped give them the comfort and flexibility they need to write the coverage. Federal regulations introduced in 2019 also allowed mortgage lenders to accept private flood insurance if the policies abided by regulatory definitions, propelling double-digit growth in private appetite.
Despite growth, private companies currently write only 27 percent of the flood market. Roughly 4.7 million homeowners have flood coverage through NFIP nationwide.
Mark Friedlander, Triple-I’s senior director of media relations, told USA Today Florida Network that private insurers are unprepared to take on all the risk NFIP covers, especially as flood risk severity rises.
“While private flood insurance is growing, NFIP remains vital for providing widespread, actuarially sound coverage against damages excluded from standard homeowners policies,” Friedlander said.
Ahead of a temporary NFIP lapse in 2025, a letter penned by organizations across the risk and insurance industry suggested the program’s absence “could further impact affordable housing, create additional challenges for small businesses, unnecessarily further increase the cost of homeownership, and must be avoided.”
Resilience key to insurance availability
For communities that invest in floodplain management, disbanding NFIP could disqualify homeowners from flood insurance premium discounts. FEMA currently incentivizes such practices through its voluntary Community Rating System, which rewards NFIP policyholders with corresponding discounts as high as 45 percent.
At a meeting with the FEMA Review Council before the 2025 lapse, NAIC members expressed support for these mitigation initiatives, with North Dakota Insurance Commissioner and NAIC Past President Jon Godfread adding “state insurance regulators are committed to expanding access to flood insurance through both the NFIP and private coverage.”
The recent restoration of FEMA’s Building Resilient Infrastructure and Communities (BRIC) program underscores the benefits of such multi-sector collaboration. Before its cancellation last year, the program had allocated more than $5 billion for investment in mitigation projects to alleviate human suffering and avoid economic losses from floods, wildfires, and other disasters.
Reinstated with several new rules to improve its impact, BRIC also “isn’t a perfect program, but it’s a necessary one,” said Daniel Kaniewski, CEO of Northstar Risk & Resilience, a former FEMA deputy administrator, and a Triple-I non-resident scholar. Though changes to the program may drive smarter resilience investment, he cautioned that “BRIC alone – or any federal program on its own – isn’t going to close the nation’s disaster resilience gap.”
“It’s going to take community leaders, emergency managers, businesses, nonprofits – and, of course, the insurance industry – pulling in the same direction,” Kaniewski said. “The burden can’t exclusively fall on property owners and federal taxpayers.”
Insurers have worked hard to develop partnerships that address these challenges. Strengthen Alabama Homes, for instance – financed by the insurance industry with more than $86 million in grants since 2016 – offers homeowners’ insurance discounts for those who build or retrofit their homes to voluntary IBHS construction standards for wind and hail resilience, prompting numerous states to implement their own programs.
Incentives and public-private collaboration will be critical to keeping insurance affordable and available amid the mounting toll of extreme weather. Swiss Re data indicates flooding, wildfires, and severe convective storms drove a record 92 percent of total global natural catastrophe insured losses in 2025, fueling a “decades-long trend of rising baseline risk.”
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