In 2012, congress passed a long-overdue reform of federal flood insurance. Two years later, it reversed itself. What happened?

Claudette D’Arrigo’s residence is located less than a mile from the Atlantic Ocean. When she bought her modest 1,662-square-foot home eight years ago in Highlands, New Jersey, her flood insurance was $1,950 per year. Then, in 2012, Superstorm Sandy slammed into the town of 5,000 residents, flooding D’Arrigo’s house. Her annual premium jumped to $2,975. That increase was nothing compared to what would happen next.

artwork depicting homes and sheets of paper gathered up by floodwatersillustration by Yevgenia Nayberg, nayberg.org

In a rare outburst of bipartisanship just months before Hurricane Sandy hit, Congress had fundamentally reformed the National Flood Insurance Program (NFIP), a program administered by Federal Emergency Management Agency (FEMA) that covers flood insurance for more than 5.3 million homeowner policies insured for a total of almost $1.3 trillion of property value. An unlikely coalition of conservative free-market think tanks, government watchdog groups, environmental organizations, and insurance-industry lobbyists helped push through the Biggert-Waters Flood Insurance Reform Act of 2012. Among other provisions, Biggert-Waters would end many federal subsidies for flood insurance premiums, which would now begin to reflect the full actuarial cost of flood risk. This was something D’Arrigo would experience firsthand.

After the flooding from Sandy, D’Arrigo and her husband decided to be proactive. “Climate change is coming,” she said, “and I had to raise my house,” which at that time sat 4.6 feet above sea level. A self-described environmentalist, she once worked to raise money for Sandy Hook Gateway National Recreation Area and to preserve habitat for piping plovers. “I’ve been to Alaska many times, and have seen the changes,” she said when asked about the impacts of global warming.

At 61 years old, D’Arrigo raided her retirement account and pulled from credit cards to raise her home. Ninety thousand dollars later and 11.3 feet higher, D’Arrigo’s house received a new flood elevation certificate. “I was one of the few people in my neighborhood to raise their house,” she said. She was told by FEMA and New Jersey Manufacturers Insurance Company that the annual premium for her newly elevated house would be less than $600.

Then D’Arrigo received a bill for $34,526. “At first I thought it was a typo,” she said. A few panicked phone calls later she discovered it was real. The figure represented financial ruin for D’Arrigo and her husband. She is a travel agent and her husband is a cook who became an American citizen just two months before Superstorm Sandy hit. Together, they make less than $100,000 per year. Highlands, New Jersey, isn’t the Hamptons. It’s a lower middle class neighborhood where the house on one side of D’Arrigo’s is condemned and the house on the other side is uncompleted. “I couldn’t sell my house if I wanted to, unless I had a cash buyer.” Mortgages in flood zones require flood insurance; cash purchases don’t. Now, D’Arrigo is worried she will never retire.

D’Arrigo was just one of many homeowners in the center of a controversy that cuts to the core of our response to global climate change; five million people in the United States – in an estimated 2.6 million homes – live less than four feet above high tide. After Congress overwhelmingly voted to reform NFIP in 2012, a Category 5 political hurricane began to form. Citizens with huge premium increases began to contact their representatives with panicked tales of dramatic premium spikes. Meanwhile, powerful interest groups like the National Association of Realtors (NAR) began to apply pressure from above. In March 2014 – less than two years after the original reform bill was passed – Congress made a dramatic 180-degree reversal and scaled back many of the reforms. The abrupt reversal is nowhere more apparent than in the case of Congresswoman Maxine Waters, a California Democrat, who spearheaded both the reform and counter-reform bills. Josh Saks, the legislative director of the National Wildlife Federation (NWF), captured the scale of the reversal: “I can’t think of any other instance except Prohibition where Congress has reversed itself in such great numbers.”

Into the Tempest

Unraveling the fate of the Biggert-Waters reforms requires an understanding of how the federal government started subsidizing flood insurance in flood-prone areas.

Private insurers had always been leery about issuing flood policies. Floods can wipe out an entire risk pool in one event, which would be like everyone in a health insurance plan getting sick at the same time. “It wasn’t a matter of price,” said Frank Nutter, president of Reinsurance Association of America, a national trade association representing insurance companies. “It was a matter of availability. Private insurers didn’t offer flood insurance.” Despite the unavailability of flood insurance, the post-World War II economic boom pushed more intensive development into coastal areas.

DC’s Poor Sandbagged in Flood Preparations

It’s a well-known twist of fate that the capital of the United States was built on malarial marshland. Major sites including the National Archives and the Jefferson Monument, the Justice Department and the IRS all stand on flood-prone ground near the Potomac River. During intense storms, the area around the National Mall acts like a bathtub, collecting runoff from across the city. The site has flooded many times over the years, most recently in 2006, when hard rains put Constitution Avenue under water, inundated Metro rail tunnels, and swamped the lower stories of the National Archives.


In 1965, Hurricane Betsy hit New Orleans and caused more than $1.2 billion in damage. Something had to be done to spread the risk. The National Flood Insurance Act of 1968 created the NFIP, under which the federal Treasury would play the role of insurer-of-last-resort. In this private-public partnership, private insurance companies would administer the policies for a fee and the federal government would assume the ultimate risk and subsidize some premiums. Local communities would adopt floodplain management ordinances; the federal government would administer what are called Flood Insurance Rate Maps.

As originally conceived, the NFIP was supposed to discourage building in risky areas. Yet, according to many environmentalists like the NWF’s Josh Saks, “the opposite happened because of the flood insurance subsidies.” Many of the properties insured through the federal program are precariously perched on some of our most valuable, vulnerable, and productive ecosystems: next to tidal estuaries, on top of former marshes, along narrow barrier islands, and in riparian zones. “Simply put,” Saks said, “floodplains are the best wildlife habitat there is, where animals go to feed, where they live, and also these are areas that give great ecosystem services,” like reducing flood risk.

For almost half a century, real estate developers and local lenders went (and continue to go) where no development had gone before. Perverse incentives were at play: Local regulations allow coastal development in areas both ecologically sensitive and at high risk of flooding, while the NFIP keeps insurance costs below the actual cost of the risk. Today nearly 40 percent of the US population lives in shoreline counties, a number the National Oceanic and Atmospheric Administration predicts will increase 8 percent by the end of this decade.

“Certainly, you still had houses on the beach before 1968, but they were bungalows,” said Steve Ellis of Taxpayers for Common Sense. “With the availability of insurance, you have more intensive development.” The NFIP made it easier for larger numbers (and sizes) of properties to be developed in areas no private third party would insure without federal support.

In some cases, federal flood insurance subsidies were paying to rebuild “repetitive loss properties” that frequently flooded. Some properties flooded as many as a dozen times without any increase in premiums. According the Union of Concerned Scientists, although repetitive loss properties only constitute 1.3 percent of NFIP policies, they are responsible for around one quarter of all NFIP payments since 1978. The Government Accountability Office calculated that by 2003 repetitive loss properties were costing the program $200 million per year. The red ink really started flowing in the aftermath of Hurricanes Katrina, Rita, and Wilma in 2005, when the NFIP went $20 billion into debt. The federal program was throwing good money after bad.

Although some viewed the 2005 storm season as an anomaly, “Superstorm Sandy put that canard to rest,” Ellis said. After Sandy walloped New York and New Jersey in October 2012, the program was looking at $24 billion in debt, which could go up to as much as $30 billion once all of the Sandy claims are settled. The NFIP was a sinking ship in a perfect political storm.

Strange Bedfellows

By 2008 unlikely bedfellows were coalescing to form the SmarterSafer coalition under the broad banner of “sustainability.” Major environmental groups such as Sierra Club, National Wildlife Federation, and American Rivers saw the NFIP as ecologically unsustainable. Traditionally conservative think tanks and taxpayer watchdog groups – including the R Street Institute, Taxpayers for Common Sense, and the Coalition to Reduce Spending – had long since been describing the outlook of the NFIP as fiscally unsustainable. The idea that the federal government serves the best when it serves the least was well received in a Tea Party-dominated Congress.

“I can’t think of any other instance except Prohibition where Congress reversed itself in such great numbers.”

Efforts to reform the NFIP also attracted insurers that would benefit from less regulated insurance markets. “Although it seems counterintuitive because of the climate change risk,” said Frank Nutter, SmarterSafer coalition member, “reinsurers want a portion of the flood insurance market because they seek non-correlated risk.” Reform would open up expanded business opportunities for private enterprise. Further, private insurance companies administering plans for the NFIP get as much as a 30 percent commission, so they had a stake in higher premiums.

The oddness of the SmarterSafer coalition cannot be overstated. One of the core members was the small government think tank, R Street Institute. R Street was a spinoff from the Heartland Institute, the same right-wing epicenter of climate science denialism that once compared environmentalists to terrorists. Despite traditional animosity between environmental and conservative groups “we all have a great respect for one another,” said NWF’s Josh Saks. “We focused on the things we have in common, not the things we have in difference.” Although member organizations of the SmarterSafer coalition didn’t agree on the rate of sea level rise, all agreed that the NFIP needed drastic reform.

The gathering forces of reform struck at the perfect time. There had been 18 short-term funding extensions of the NFIP since 2008 and two lapses in authority, which the National Association of Realtors claimed resulted in the “delaying or canceling of 1,300 real estate transactions” per day. Groups like the NAR, National Association of Home Builders, and American Bankers Association were fatigued by the short-term extensions. They just wanted something passed to reauthorize the NFIP. “When we first did the reform bill, there was no other side,” Saks said. Indeed, when Biggert-Waters passed, then-NAR President Moe Veissi applauded the passage of the five-year reauthorization of the NFIP because it would “help bring stability to real estate markets.”

detail of an artwork depicting a house tossed by a flood

Although Biggert-Waters was “a long time coming,” Steve Ellis said, “it moved very quickly at the end.” Sponsored by Republican Representative Judy Biggert of Illinois and Democratic Representative Maxine Waters of California, the Biggert-Waters Act of 2012 surprised even its most ardent supporters. The bill cleared the House in a 406 to 22 vote and sailed through the Senate 74 to 19 – this in the same Congress that would grind to an embarrassing halt in the government shutdown spectacle. “They normally don’t even get that many votes for naming a post office,” Saks said.

The Biggert-Waters Flood Insurance Reform Act of 2012 that President Obama signed into law represented a sweeping reform of the NFIP. Federal subsidies for flood insurance would be immediately phased out for 438,000 policies. Flood insurance rates under the NFIP would now float to actuarial levels for many properties, especially second homes, commercial properties, and repetitive loss properties. Low rates could no longer be “grandfathered” and passed onto purchasers of properties, meaning a home sale could trigger an increase in premiums for the buyer. The free market would now reflect the true flood risk of waterfront living, thereby encouraging more ecologically- and fiscally-sound practices. The NFIP would slowly begin its climb out of indebtedness to the US Treasury.

Advocates of reform were dizzy with success. The SmarterSafer coalition had helped pass a major piece of reform legislation in one of the most gridlocked Congresses in history. However, the size of the votes and speed of the victory hid something. “We passed the bill and we all felt great, but we didn’t know what was coming,” Saks remembered. After passage of Biggert-Waters “we stopped working,” Ellis said, “and we took our eye off the ball.”

Like forgetting to board up your windows before a hurricane, the issue of premium affordability was an unaddressed issue that would undermine the reforms just two years later.

Category V Political Hurricane

Realtor George Kasimos used to be as politically apathetic as they come. “I barely voted before Biggert-Waters,” he said. Things changed one afternoon in January 2013 when a neighbor on Barnegat Bay in Toms River, New Jersey told Kasimos that his flood insurance would be over $30,000 per year. Kasimos didn’t believe it until he saw the bill.

An attempt to find out if he would have to raise his house turned into StopFEMANow, a lean, mean grassroots machine. “What plan? There was never a plan,” Kasimos said. “My original plan was to get information for myself and my neighbors.” From a makeshift office in his garage, Kasimos launched a citizen’s campaign. He insists his efforts aren’t an attempt to guarantee government largess. In fact, he says that some rate increase was inevitable, fair, and acceptable. Instead, “the issue is rates that increase three thousand percent.” He thinks new houses should be built higher and that “we need to stop coastal development.” When asked about climate change and sea level rise, he replied with a very direct New Jersey inflection: “You gotta be an idiot to not see that sea level rise is happening.”

The now-politicized Kasimos started confronting public officials in meetings, speaking with major news outlets, organizing protests, and canvassing Congress. A casual meeting of only a couple dozen people in a sandwich shop grew to more than 1,000 followers on Twitter and more than 8,100 on Facebook, which his children had to show him how to navigate. These figures don’t include the dozens of split-off groups. On one Saturday in 2013 there were 15 StopFEMANow events in 10 states. The people behind this movement weren’t millionaires. Instead, they constituted “the working waterfront,” to borrow a phrase from Skip Stiles of coastal Virginia’s Wetlands Watch.

Kasimos wasn’t a lone, quixotic figure tilting at the windmill of federal bureaucracy. Other groups were already engaging. One of them was Greater New Orleans, Inc (GNO), a regional economic development alliance that pursues “an aggressive agenda of business development” for Southeast Louisiana. GNO started hearing about catastrophic premium increases from across the state. At that early point, said Caitlin Berni, director of external affairs for GNO, “we didn’t know it would be national issue.”

A delegation from GNO went to Washington, DC, to talk with FEMA, members of the Louisiana congressional delegation, and the House Financial Services Committee. “FEMA didn’t really believe what was happening,” Berni said. Feeling ignored in Washington, GNO began leveraging relationships built after Hurricane Katrina to “organically” build a coalition. Eventually, this would become the Coalition for Sustainable Flood Insurance, which now includes 250 organizations in 35 states, including Kasimos’ StopFEMANow.

Stories of skyrocketing flood insurance premiums poured in from across the country. In Scituate, Massachusetts, one homeowner was slammed by a $68,000 premium, while in Brunswick, Georgia, another homeowner was informed the premium would jump from $5,000 to almost $12,000 per year on a house that sold for $128,000 in 2012. The premium for a tiny bungalow in Hawai‘i zoomed up from $2,776 to $25,000 overnight. Such stories even came from landlocked places like Colorado Springs, Colorado. El Paso County Commissioner Sallie Clark (who is also first vice president of National Association of Counties) said that “as a county official at a grassroots level, I can say [the backlash against Biggert-Waters] was really grassroots. It was like someone flipped a switch.” She began receiving desperate calls from citizens with insurance premium “sticker shock.” One of her constituents had to move her business because of flood insurance. “We weren’t opposed to reform,” Clark said. “We just wanted it to be phased in gradually. We wanted FEMA’s flood maps to be accurate.” The maps, she said, were badly outdated.

detail of an artwork depicting sheets of paper tossed by a flood under a crescent moon

Many of the members of the pro-reform SmaterSafer coalition dismissed the tales of five-figure premium increases as distracting anecdotes. Although Ellis of Taxpayers for Common Sense conceded that many people were genuinely hurt by rising rates, he suggested that some of the sensational stories of sticker-shock were “unicorns” and were probably huge flood risks or subject to incorrect maps. Indeed, a $25,000 premium on a $250,000 house assumes a total loss every decade.

However, the outliers turned the heads of a media that is always hungry for a good story and members of Congress thinking about re-election. What Ellis dismissed as solitary unicorns proved to be a stampede.

To this day, there is debate within the SmarterSafer coalition regarding whether the backlash against Biggert-Waters was a grassroots uprising or the result of a professional lobbying campaign. Eli Lehrer of the free-market think tank R Street Institute dismissed the intensity of grassroots protest and attributed the backlash to concerted efforts of groups like the National Association of Realtors. “The people on the other side of reform have a lot more money, incalculably more almost,” he insisted.

Although the NWF’s Saks thought some of the tales of premium increases were akin to the hysteria about Obamacare “death panels,” he said it wasn’t as simple as pointing a finger at the other side’s overwhelming lobbying. Instead, the fight was an asymmetric one. “We were macro and opposition was micro,” Saks said. “Although we had more registered lobbyists and better connections, they had the personal stories that trumped our macro policy.”

The line between grassroots and Beltway lobbying is especially blurry when it comes to the National Association of Realtors, which originally supported Biggert-Waters reforms. With more than one million members spread out across the country, the association could leverage its members nationally in a coordinated effort. “NAR worked very hard to educate members of Congress about the real impacts of Biggert-Waters on home and business owners across the country,” NAR said in an email statement. Some 300,000 letters, 11,000 phone calls, and hundreds of meetings in DC were leveraged to inform Congress of sellers who couldn’t sell and buyers who received conflicting and unaffordable insurance quotes. Citing many of the same tales of catastrophic premium increases, groups like NAR and GNO’s Coalition for Sustainable Flood Insurance easily reframed the issue away from sound environmental policy and fiscal prudence. Instead, the debate would now revolve around the plight of local economies, homeowners, and the still-recovering housing market.

Yet, NAR is much more than a network of real estate agents. According the Center for Responsive Politics, NAR is the third biggest political donor in the US. In the 2014 elections, the industry group spent at least $8 million to support its favored candidates. Corporations and industry groups including JP Morgan, Mortgage Bankers Association, Home Depot, Independent Community Bankers of America, and the US Chamber of Commerce also contributed lobbying muscle to reverse Biggert-Waters. The SmarterSafer coalition was now politically outgunned.

Once again, Congress was surprisingly quick to act. In the House, Congressman Michael Grimm – a Republican from New York who had seen his district swamped by Superstorm Sandy – joined Congresswoman Waters to sponsor a reversal of the reform legislation. Having pushed the original reform bill, Waters now blamed FEMA for what she said was bungled management of the reform. “FEMA, in my estimation, has distorted the intentions of a well-meaning piece of legislation,” she said during a 2013 visit to Southern Louisiana; the agency “cut corners,” she said. In other public statements she said she was “outraged by the increased costs of flood insurance premiums” and pledged to address the “unintended consequences” of her legislation. Waters also was quick to suggest that failure to undo Biggert-Waters reforms “might kick off a similar cycle of stagnant home sales and depressed home values.”

When put in the context of long-term sea level rise, the worst it yet to come.

It is hard to ignore that since 1989 the largest category of donors to Maxine Waters Campaign Committee and Leadership PAC is the National Association of Realtors or groups or individuals associated with NAR, for a total of $92,240. This is not to suggest corruption – groups like NAR are large enough to give to practically everyone in Washington, and they do. Yet it is worth noting that Waters, who spearheaded both the original reforms and their subsequent dismantling, sided with her largest career supporter in both bills. Congresswoman Waters declined repeated requests to comment for this story.

The Homeowner Flood Insurance Affordability Act of 2014 (or Grimm-Waters) received 306 Yeas and 91 Nays in the House, and was approved 72 to 22 in the Senate. President Obama signed the measure into law on March 21, 2014.

Grimm-Waters scaled back many of the key reforms of Biggert-Waters. Grandfathering – the practice in which a person buying a property with flood insurance could assume the seller’s low rate – was restored. The so called “property sales trigger,” which required buyers to pay full risk price at purchase, was repealed. Overall rate increases would be capped at anywhere from 15 to 18 percent per year for an individual property, 25 percent for second homes or businesses. Although a small surcharge would be applied to all policies to help fill the fiscal hole of the NFIP, some policyholders would receive refunds for “overpayment” that occurred during the brief Biggert-Waters regime. An affordability study would be conducted. In sum, it was back to business as usual.

After the Storm

As Congress recessed prior to November’s election, most members of Congress could go home to their districts claiming to have stopped runaway flood insurance premium increases. But to supporters of the original Biggert-Waters reforms, shortsighted politics had trumped sound policy. Oregon Representative Earl Blumenauer, one of five Democrats in the House who voted against Grimm-Waters, said Congress was merely “kicking the can down the road.”

Why, exactly, did such a stunning legislative reversal occur? The answer runs deeper than the standard tale of a pitched battle between competing lobbying interests in Washington, DC. Rather, the inability to think smartly about coastal development reveals a collective failure of imagination and preparedness when it comes to the unfolding threat of sea-level rise. Congress, the massive real estate industry, and individual homeowners punted: They couldn’t come to grips with the long-term costs of development along a changing shoreline.

Biggert-Waters represented a rare moment when fiscal and environmental common sense overlapped just long enough for policymakers to look beyond the horizon of a 30-year mortgage. The undoing of these reforms proves that our political system can’t even see past the horizon of the next election. Perhaps it is all a reflection of what behavioral scientists say is Homo sapiens’ hard-wired myopia. We’ve evolved an excellent ability to notice short-term dangers like a spike in our insurance, but we’re lousy at seeing long-term threats like sea level rise.

When put into the context of long-term sea level rise that could range from 2 to 7 feet in this century, the worst is certainly yet to come. According to a study by Climate Central, if current emission trends hold, by 2100 three million additional people in the US will be exposed to “chronic flooding.” This may be an understatement in light of a recent report from the Intergovernmental Panel on Climate Change that suggests we may be on an irreversible path toward 23 feet of sea level rise in the coming centuries. Although the national debate currently revolves around what a flood insurance policy should cost (and who should pay for it), climate change will inevitably reframe the flood insurance debate toward remediation, adaptation, and even coastal retreat.

Both the private insurance market and Earth’s climate are sending a clear signal: We built in places we shouldn’t have. But we’re unwilling to heed the message, and act shocked when disaster strikes. We’ve filled in wetlands and are surprised when those streets flood during high tides, as now happens routinely in Hampton Roads, Virginia. During occasional “king tides,” some neighborhoods in Miami are brought to a standstill. Louisiana loses a football field of land every 48 minutes – 16 square miles per year – a reality that makes insurance a moot point for many properties. And still, every day some 1,355 building permits are issued in coastal counties.

Yet, if you listen carefully as you walk these increasingly flood-prone areas during mundane high tides that splash against the edge of buildings, you can almost hear Mother Nature above the political roar, gradually reclaiming what was lost.

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