Flood Insurance

Is the Rest of America Footing Flood Insurance Costs in Louisiana and Mississippi?

The cost to repair flood damage can be devastating. To make matters worse, the federal flood insurance program is set to expire July 31. The National Flood Insurance Program (NFIP) has served as a safeguard for many homeowners in the past. That said, homeowners in Louisiana and Mississippi are paying flood insurance premiums that are disproportionate to the amount they receive in claim payouts.

Key Take-Aways

  • In total, Mississippi and Louisiana homeowners have received $1.76 and $1.42 in NFIP claim payouts, respectively, for every $1.00 of flood insurance premiums being paid.
  • Currently, only Mississippi and Louisiana homeowners have received more in claim payouts from the NFIP than they pay in flood insurance premiums.
  • Homeowners in every other state are paying more for flood insurance premiums than they have received in claim payouts from the NFIP.
  • The NFIP was meant to be self-funded, but the large losses caused by natural disasters have made it reliant on taxpayer dollars in recent years.

Mississippi and Louisiana Homeowners Pay Less in Flood Insurance Premiums Than They Receive in Claims

According to the most recent data from the Federal Emergency Management Agency (FEMA), Mississippi and Louisiana homeowners have received, in total, $1.76 and $1.42 in flood insurance claims for every $1.00 they pay in flood insurance premiums. Homeowners in all other states received less than $1.00 in claim payouts per $1.00 paid in flood insurance premiums.

In other words, Mississippi and Louisiana are the only two states that receive more in claim payments versus what they pay for flood insurance premiums. The five states with the highest ratio of flood insurance claim payouts to flood insurance premiums paid are outlined below.

Average Flood Insurance Payout for Every Dollar Being Paid in Premiums

lorem
lorem
lorem
lorem
lorem

Top 5 Highest-Cost Significant Flood Events Since 2010

While results are heavily impacted by single flood events, flood insurance by its very nature is meant to protect against rare but large losses. As defined by FEMA, a significant flooding event is one with 1,500 or more paid insurance losses. Floods may also be referred to as significant flood events for other reasons, like if the event is classified as a major hurricane event. The top five most costly significant flood events since 2010 are highlighted below.

RankFlood Event (as named by FEMA)YearTotal Amount Paid ($billion rounded)Average Paid Loss
1Superstorm Sandy2012$8.7$65,997
2Hurricane Harvey2017$8.4$112,964
3Louisiana Severe Storms and Flooding2016$2.5$90,725
4Hurricane Irene2011$1.3$30,366
5Hurricane Irma2017$1.0$45,421

Flood Insurance Premiums Paid vs Claim Payouts Received by State

The rankings below showcase how each state ranks in terms of the ratio of flood insurance premiums paid to flood insurance claim payouts received. A higher ratio is favorable to homeowners in the respective state, as it indicates that the states' collective homeowners pay less as compared to the amount they have received from flood insurance claims. For example, California homeowners, collectively, have received $0.07 in insurance claim payouts for every $1.00 being paid in premiums.

RankStatePremium Paid for Policies in Force (A)Average Annual Amount Paid on Losses (B)Ratio (B)/(A)
1Mississippi$43,256,135$75,954,248$1.76
2Louisiana$344,556,698$488,678,542$1.42
3Texas$401,418,861$386,190,634$0.96
4North Dakota$6,819,850$6,485,635$0.95
5Missouri$21,489,901$20,423,133$0.95
6Alabama$36,813,897$25,773,327$0.70
7New Jersey$220,847,044$150,258,334$0.68
8New York$205,428,431$134,741,169$0.66
9Iowa$12,877,022$7,486,055$0.58
10West Virginia$16,734,936$8,725,616$0.52
11Pennsylvania$65,444,000$29,518,843$0.45
12Minnesota$7,999,198$3,552,008$0.44
13Oklahoma$11,410,025$4,999,345$0.44
14Kentucky$19,737,507$8,073,686$0.41
15Tennessee$24,545,200$8,760,783$0.36
16Vermont$5,009,406$1,595,300$0.32
17Illinois$42,116,862$13,234,556$0.31
18South Dakota$3,220,174$1,006,715$0.31
19Kansas$8,075,513$2,410,361$0.30
20Indiana$22,255,871$6,347,777$0.29
21North Carolina$110,021,879$30,863,989$0.28
22Arkansas$13,608,492$3,801,883$0.28
23Connecticut$52,751,425$12,567,872$0.24
24Ohio$33,568,773$7,843,311$0.23
25Virginia$78,230,241$17,931,240$0.23
26Washington$32,909,977$6,550,713$0.20
27Maryland$37,988,573$7,347,635$0.19
28Wisconsin$11,861,472$2,118,890$0.18
29Rhode Island$18,930,050$3,024,097$0.16
30Georgia$64,786,052$10,349,222$0.16
31South Carolina$137,098,858$20,140,397$0.15
32New Hampshire$8,588,634$1,255,400$0.15
33Florida$962,384,387$127,014,359$0.13
34Nevada$8,410,114$1,109,938$0.13
35Maine$8,865,200$1,087,225$0.12
36Colorado$18,011,473$2,157,055$0.12
37Nebraska$9,109,915$1,090,001$0.12
38Massachusetts$78,074,015$9,280,162$0.12
39Alaska$2,228,441$243,599$0.11
40Delaware$19,453,094$1,997,930$0.10
41Oregon$25,311,913$2,478,428$0.10
42Michigan$20,224,704$1,891,449$0.09
43Montana$3,404,683$265,756$0.08
44California$188,966,557$14,014,197$0.07
45Utah$2,546,764$153,383$0.06
46Arizona$21,236,522$1,216,194$0.06
47Hawaii$40,318,334$2,301,647$0.06
48Wyoming$1,751,949$074,881$0.04
49Idaho$5,234,705$218,974$0.04
50New Mexico$10,527,695$373,874$0.04
Ratios are rounded to the nearest cent; rankings are representative of true values.

Background on the NFIP and Flood Insurance

What Is the NFIP? The NFIP is a federal program that oversees 5.2 million flood insurance policies, which provide more than $1.2 trillion of coverage. The NFIP was created by U.S. Congress in 1968 as a solution to the lack of private flood insurance that was available at the time. The NFIP is managed by FEMA, and its objectives are to provide flood insurance, improve floodplain management and develop maps of flood hazard zones.

How Does It Work? Homeowners insurance premiums and, more recently, taxpayer dollars fund the program. In exchange for insurance premiums, the NFIP provides coverage for up to $250,000 of damage to a home and up to $100,000 for damage to the home's contents. In order for homeowners to participate in the program, they must live in a community that adopts flood mitigation practices to reduce the risk of floods in the area. While FEMA oversees the program, private insurance companies manage some of the policies and process claims.

Is It Mandatory to Participate? According to FEMA, it only has the authority to enforce the purchase of flood insurance as it relates to financial disaster assistance under the National Flood Insurance Act. In other words, if you don't have flood insurance and you live in a high-risk community, you won't have access to FEMA's financial disaster assistance. Furthermore, the National Flood Insurance Act restricts lenders that are federally regulated, overseen or insured by a federal agency to extend financing on a home in a floodplain when a community is participating in the NFIP, unless flood insurance is purchased. So while it's not mandatory, there are many restrictions in place that make it a pseudo-requirement.

Funding Issues: The NFIP was intended to be self-funded. However, the NFIP has been operating at a deficit since Hurricane Katrina ravaged New Orleans and the southern coast of the U.S. in 2005. In fact, when Superstorm Sandy made landfall on the East Coast in 2012, the NFIP already owed the U.S. treasury $17 billion to cover the losses resulting from hurricanes Katrina and Rita. That same year, Congress increased FEMA's borrowing authority from $20.7 billion to $30.4 billion. As of earlier this year, the NFIP faced $20.5 billion in debt.

What Happens if the NFIP Expires? The NFIP would no longer have the authority to provide new flood insurance policies. Flood insurance policies entered into before July 31st would still be valid, but would only continue until the end of the one-year policy term.

Is Flood Insurance Required? Whether you're required to purchase flood insurance depends on the risk of a flood occurring where your home is located and on your mortgage lender. According to FEMA, if your mortgage is federally backed and you live in a high-risk flood area, federal law requires you to carry flood insurance. If a home is located in a moderate- to low-risk area, a homeowner isn't required to purchase flood insurance. That said, lenders may require flood insurance as a prerequisite for getting a mortgage.

Considerations for Homeowners as We Approach Hurricane Season: Quick Facts

As hurricane season approaches, homeowners should ensure they're adequately protected against large damages and losses. Below, we provide a couple of findings that may come as a surprise.

Quick Facts

  • Not every homeowners insurance policy offers coverage for wind damage caused by hurricanes, and most policies exclude flood damage coverage.
  • According to the Insurance Information Institute, a special deductible may apply for home insurance claims if the damage in question is caused by a hurricane.
  • While there are a few exceptions, when you take out a flood insurance policy, there's typically a 30-day waiting period before the policy goes into effect.

Methodology

To arrive at our ratios and rankings, we examined two main figures: the total amount of premiums of policies currently in force and the total payments made to each state since Jan. 1, 1978. The latter figure was then adjusted to reflect the average annual payment for each state over the past 40 years. All existing NFIP policies with premium in-force have a maximum term of one year. The total number of premiums in force and the total payments made to each state were both sourced from FEMA. FEMA updates its site frequently, and all information used in this study is based on data retrieved May 3, 2018.

Joe Resendiz

Joe is a Research Analyst at ValuePenguin, focusing on credit cards and the payments industry. He previously specialized in public sector and infrastructure financing at Goldman Sachs.