Breaking the Cycle of "Flood-Rebuild-Repeat": Local and State Options to Improve Substantial Damage and Improvement Standards in the National Flood Insurance Program

Abstract

Congress established the National Flood Insurance Program (NFIP) in 1968 to reduce flood damages nationwide and ease the Federal government’s financial burden for providing disaster recovery. Due largely to recent flood disasters, the NFIP is over $20.5 billion in debt. A proportionally small number of properties insured through the program, known as “severe repetitive loss” (SRL) properties, are repeatedly flooded, repaired, and rebuilt. These properties contribute disproportionally to the rising debts of the NFIP program. Climate change impacts, including sea level rise, more intense and frequent precipitation events, and increased storm surge, put these already vulnerable properties at even greater risk and will greatly increase the number of properties caught in this cycle of “flood-rebuild-repeat.” The NFIP contains an adaptive mechanism — the substantial improvement/damage (“SI/SD”) standard — which can break the cycle of “flood-rebuild-repeat.” The SI/SD standard requires property owners in the program who are making significant improvements or repairs to structures in areas most vulnerable to flooding to take certain measures to mitigate their risk. However, two critical shortcomings of the current FEMA SI/SD definition undermine the effectiveness of program: 1) the SI/SD standard is only triggered when damages or repair work are equal to or exceed 50 percent of the fair market value of the structure, and 2) the regulatory definitions of “substantial improvement” and “substantial damage” do not consider repetitive cumulative repair work or cumulative damage over time. This paper explains how reforming the SI/SD standard to calculate damages cumulatively over time and to be triggered for damages and repair work worth less than 50 percent of the fair market value of the structure can help the NFIP program better weather a changing climate, lessen the taxpayer burden, and increase the safety of homeowners. It analyzes the prevalence of heightened SI/SD standards among NFIP communities and in state model ordinances and discusses the benefits and challenges of implementing more rigorous SI/SD standards.