Project 2025 Plan to End NFIP Welcomed by Some, Rejected by Others in Insurance

A plan by a politically conservative group to dismantle the National Flood Insurance Program, if Donald Trump is elected president, has been met with approval from a private flood insurer but sharp skepticism from economists and insurance agents who say such a move would disrupt home sales and property insurance across the country.

“It would mean the collapse of the lending market,” said John Gardner, owner of Lee County Insurance Agency in Fort Myers, Florida. “They just need to fix it and stop talking about fixing it.”

Gardner’s reaction came after news reports noted that the Heritage Foundation’s Project 2025, designed to be a blueprint for Trump’s first few months in office, would put an end to federal flood insurance as part of a broader plan to reduce the size of the federal government.

“The NFIP should be wound down and replaced with private insurance starting with the least risky areas currently identified by the program,” notes the Project 2025 “Mandate for Leadership” chapter on Homeland Security, which houses the Federal Emergency Management Agency and NFIP.

The group pointed out that the 50-year-old National Flood Insurance Program is more than $20 billion in debt. And Congress in 2017 canceled a previous debt of $16 billion.

“These subsidies and bailouts only encourage more development in flood zones, increasing the potential losses to both NFIP and the taxpayer,” the group wrote.

Trump has downplayed his connection to the project, but news reports have shown that a number of former staffers and adherents are associated with the organization and its detailed game plan.

Pulling the plug on NFIP may sound like a viable idea for trimming taxpayer liabilities. And voices on both sides of the political divide have long called for major reforms to the program – some of which are now under way.

But the program does provide more-affordable coverage for almost 5 million property owners across the country, something supporters have said is more critical than ever with rising storm risks. Coastal and other vulnerable areas now depend on NFIP heavily, explained Carolyn Kousky, an economist and vice president with the Environmental Defense Fund and a former University of Pennsylvania professor.

“It would be really devastating financially, not just to households, but also to the local economies if there was no flood insurance available anymore,” Kousky told Insurance Journal.

Research shows that flood insurance claims payouts expand throughout a community after a flood event, providing revenue and jobs, she noted.

Private flood insurance companies, once thought to be a nationwide solution, simply cannot or do not write enough properties at affordable rates to fill the gap if the NFIP were abolished, Kousky and Gardner said.

Florida is the largest flood insurance market in the country, with 1.7 million homes covered by NFIP. That’s 35% of the program’s policies, research shows. Some 29 admitted insurers and a handful of surplus lines carriers offered private residential flood coverage in the state in 2018, covering less than 40,000 properties.

“The private flood market is in a desperate situation in Florida. I don’t have a private market that’s anywhere close to being competitive in Lee and Collier County,” Gardner said.

Gardner knows a thing or two about flood insurance. A longtime insurance agent in Fort Myers, his office and his home were flooded when Hurricane Ian swamped southwest Florida in 2022. He also has been consulting with county officials on how to keep FEMA community rating discounts in place after the administration announced this spring that it would cancel the discounts because of inappropriate rebuilding in flood-prone areas.

Without affordable flood coverage for middle-income families, the economic engines of home building, real estate sales and mortgage lending would grind to a halt, he and Kousky noted.

“The problem is that we have a lot of research that shows that insurance is really critical for recovery. Because we don’t have lots of other sources for people to get the dollars they need to rebuild,” said Kousky, author of books on climate resilience and disaster insurance.

Without affordable insurance, many flooded homeowners would look to the federal government for more disaster assistance. And that assistance is seen as less robust than some insurance coverage. Gardner told of one Hurricane Ian victim who recently was told she will soon lose her FEMA-provided trailer, yet her home is still unrepaired – and bids from contractors on elevating the structure won’t come for months.

Even the Insurance Information Institute, often a staunch supporter of market-based insurance solutions, has said eliminating NFIP may not be feasible. Private flood insurance is an option, but can be an expensive one.

“Eliminating NFIP could lead to a significant spike in rates in the private market and cause many more homeowners to forgo flood coverage,” said Mark Friedlander, director of corporate communications for the Institute. “This would generate a new risk crisis in Florida as we continue to recover from the manmade crisis caused by years of legal system abuse and assignment of benefits claim fraud.”

But others in the industry agree with the Heritage Foundation’s plan.

Craig Poulton, of Poulton Associates in Salt Lake City, a private flood and catastrophe insurance brokerage, has studied the federal flood program for years. He noted that “Plan A” was initially crafted by the National Flood Insurance Act of 1968 to encourage private carriers, with limited federal involvement.

But after some disputes, the government effectively nationalized the program. Even then, the federal help was designed to recede at some point.

“Very few people are aware that under the legislation, NFIP was only supposed to run, under Plan B, until 1997,” Poulton said. “The idea of the original legislation, even under Plan B, was to minimize government participation and assure a takeover by the private market.”

The Heritage Foundation seems to understand that, if the NFIP will cooperate, “Plan A can be restored in short order and eventually all flood insurance in United States can be in the private market through an orderly depopulation of the NFIP,” he said.

If this were to happen, taxpayers, the environment and policyholders would all benefit. “You get what you incentivize and the NFIP has incentivized catastrophic practices when it comes to where we build structures and how we build them in flood-prone areas of our nation,” Poulton said.

Still, Kousky and others point out that unwinding the NFIP would be complicated, at best. First, a federal law requires homeowners with federally backed mortgages to obtain flood insurance in higher-risk flood zones. Repealing that law is not something a president could do on his own. And despite repeated calls for smaller government, members of Congress in Florida, Louisiana and other states in both political parties have repeatedly balked at reducing low-cost NFIP coverage for their constituents.

And in Florida and a few other coastal states, more complications could arise. Florida law requires most HO policyholders with the state-created Citizens Property Insurance Corp. to also purchase flood insurance, regardless of flood zone. If NFIP no longer were on the table and private flood insurance is not available, many property owners may have few, if any, options.

Ironically, the Project 2025 call for repealing federal flood coverage comes at a time that the NFIP is undergoing some significant reforms. Risk Rating 2.0, as it is known, is designed to disincentivize floodplain building, raise premiums for the most flood-prone areas, and, eventually, reduce the program’s overall spending.

“With these reforms, it’s not clear that the NFIP will be a money loser for the Treasury going forward,” said Philip Mulder, assistant professor of risk and insurance at the University of Wisconsin-Madison. “The private sector should be able to compete now where it can operate more efficiently or with better coverage.”

Room for improvement exists, especially on transparency, “but there are probably bigger gains from fixing the program than scrapping it altogether.”

Critics through the years have argued that National Flood Insurance encourages more building in low-lying and coastal areas, exacerbating flood risks as sea levels rise and storms increase. But there’s scant research that shows that low-cost flood insurance does that. Some people seem attracted to waterfront sites regardless of insurance availability, and Risk Rating 2.0 and other FEMA efforts are now designed to prevent more floodplain structures, experts have said.

The need for affordable flood coverage will only grow in vulnerable areas. In Florida, about 70% of residents live in coastal areas, and some 64,000 residential properties, valued at more than $26 billion in value, will be highly vulnerable to flooding by 2045, a recent report by Florida Tax Watch noted.

Ending the NFIP program could ultimately produce a scenario in which only the very wealthy can afford to live in water-view homes, Kousky said.

“It would become a place where you only have people who could self-insure that risk,” Kousky said. “Only the very affluent could afford that risk or could afford very high flood insurance prices.”