The National Flood Insurance Program (NFIP) is once again facing an uncertain future, with a looming September deadline to reauthorize its funding.[1] For those who have watched this drama unfold over the years, the threat of the NFIP lapsing is nothing new. Still, the stakes feel especially high this time, as more Americans than ever rely on flood insurance to protect their homes and livelihoods.
The NFIP was created in 1968 after Hurricane Betsy devastated parts of the Gulf Coast and exposed a major problem: private insurers simply weren't willing to underwrite widespread flood risks.[2]
Congress stepped in, creating a federally backed program to provide basic flood insurance coverage to homeowners, renters and businesses in participating communities. In exchange, communities agreed to adopt and enforce floodplain management regulations aimed at reducing future flood damage.
Over the decades, the NFIP has expanded and evolved, but it’s also faced major financial struggles. Catastrophic events like Hurricane Katrina, Superstorm Sandy and Hurricane Harvey triggered massive payouts, pushing the program into billions of dollars of debt.
Today, the NFIP owes the U.S. Treasury roughly $20 billion, even after Congress forgave $16 billion of its debt in 2017. Critics argue that the program needs structural reforms to remain viable, but reaching a consensus has proven difficult.
This brings us to the current situation. The NFIP’s authorization is set to expire at the end of September unless Congress acts.[3]Â
This isn’t the first time Congress has flirted with letting the NFIP lapse. In fact, it’s happened several times over the past couple of decades. The most notable example came in 2010 when the NFIP lapsed four times over the course of a few months. Some lapses lasted only a few days, but others stretched longer, causing noticeable disruption in the real estate market.Â
Historically, Congress has always managed to reauthorize the program eventually, often attaching short-term extensions to larger spending bills. However, today's political environment is more polarized than in past cycles, making predictions harder than usual.
If lawmakers fail to reauthorize the program—or at least pass a short-term extension—the consequences could ripple quickly through the housing market and beyond.
First and foremost, a lapse would mean that the NFIP couldn’t issue new policies or renew existing ones. That would put countless real estate transactions at risk, especially in coastal states and flood-prone areas where flood insurance is often a mandatory part of obtaining a mortgage. Buyers might not be able to close on new homes if flood insurance isn’t available, leading to delays, cancellations, and economic losses for both individuals and communities. According to the National Association of Realtors, approximately 1,300 home sales are disrupted every day during an NFIP lapse.[4]
Existing policyholders would not immediately lose coverage if the program lapses, but they would be unable to renew their policies once they expire. Over time, this would leave more and more homeowners unprotected against flood damage—a concerning prospect as we move deeper into hurricane season. Moreover, it could increase the financial burden on taxpayers since uninsured losses after a disaster often prompt federal disaster aid.
Part of the challenge is that there’s broad bipartisan agreement that the NFIP needs reform, but little agreement on what those reforms should look like.Â
Meanwhile, the private flood insurance market has grown in recent years, thanks in part to changes made by Congress and federal regulators. More private insurers are now offering alternatives to NFIP policies, particularly for higher-value homes. However, the private market remains relatively small, and in many areas, the NFIP is still the only option.
If Congress doesn’t act in time, we could see a two-track scenario. In lower-risk areas, the impact of an NFIP lapse might be modest, with private insurers stepping in to fill some gaps. But in high-risk zones—think Gulf Coast communities, parts of Florida, New York, New Jersey, and along river basins—the absence of flood insurance could stall new home construction, depress property values, and leave residents financially vulnerable.
The uncertainty around the NFIP also sends a broader signal about the growing risks of climate change. Flooding is becoming more frequent and severe in many parts of the country, even outside traditional high-risk areas. Without a stable, functioning national flood insurance program, the nation's resilience to these disasters is weakened.
For now, all eyes are on Congress. If history is any guide, a last-minute reauthorization—whether for a few months or a few years—is still the most likely outcome. But each close call raises the question of how sustainable the NFIP’s current structure really is and how long we can afford to keep patching it up without real reform.
National Flood Insurance Program. [FEMA]
A Brief History of the NFIP. [FloodSmart]
Congressional Reauthorization for the National Flood Insurance Program. [FEMA]
Congress Passes Spending Bill, Sparing Disruptive NFIP Lapse. [National Association of Realtors]