Project 2025, the presidential transition plan of the Heritage Foundation, calls for the federal government to end the National Flood Insurance Program (NFIP). The program currently provides affordable flood insurance for more than 4.6 million properties in areas with high flood risk.

“When flood costs exceed NFIP’s revenue, FEMA seeks taxpayer-funded bailouts,” said the group in Project 2025’s book “Mandate for Leadership,” in a chapter focused on dismantling the Department of Homeland Security — which houses FEMA and the NFIP.

The group points to the subsidization of flood insurance costs and growing NFIP debts.

“Current NFIP debt is $20.5 billion, and in 2017, Congress canceled $16 billion in debt when FEMA reached its borrowing authority limit,” said the group. “These subsidies and bailouts only encourage more development in flood zones, increasing the potential losses to both NFIP and the taxpayer.”

The National Flood Insurance Act of 1968 launched the NFIP to address an increasing need for flood insurance because privatized coverage was often not available or was unaffordable.

The NFIP is able to borrow money from the federal treasury in the case of extreme flooding events, and the total cost of flood-related claims has exceeded NFIP premiums ever since Hurricane Katrina in 2005.

As of June 2024, the NFIP reported 4,656,028 policies in effect in the U.S., providing about $1.3 trillion in flood insurance. Policyholders could face higher flood insurance premiums through private flood insurers or be unable to secure coverage at all if the NFIP is dissolved.

How this would affect the flood insurance market

The NFIP sells coverage through NFIP Direct and private insurance partners, and would-be policyholders must live in an NFIP community to purchase coverage. About 1,500 communities participate in the Community Rating System (CRS), the NFIP’s voluntary incentive program that rewards communities that take measures to reduce flood risks. Municipalities have the right to opt out of participation in the program.

Policy limits through the NFIP are $250,000 for building coverage and $100,000 for contents coverage for most residential homes.

Property owners living in special flood hazard areas (SFHAs) identified by FEMA have a risk of flooding and must purchase flood insurance if they have a government-backed home mortgage loan.

“The Community Rating System is a critical element of having flood insurance written through the National Flood Insurance Program. It can provide discounts up to 45% off base rates for residents who live in participating communities,” said Mark Friedlander, the director of corporate communications at the Insurance Information Institute (Triple-I).

In total, CRS communities include more than 3.6 million policyholders and make up more than 70% of NFIP policies.

“Eliminating NFIP could lead to a significant spike in premiums in the private market and cause many more homeowners to forgo flood coverage unless they are required to have it by their mortgage lender,” said Friedlander.

Can the private market fill the gap?

If implemented, Project 2025’s plan to cut the NFIP would prioritize private flood insurance in place of federally subsidized coverage.

“The NFIP should be wound down and replaced with private insurance starting with the least risky areas currently identified by the program,” said the group in its playbook.

It’s not clear whether the private insurance market can fill the gap. If people can’t purchase more affordable insurance through the NFIP, they may opt out of coverage.

“This is especially true in Florida, where nearly half of NFIP’s policies are written,” said Friedlander. “Florida’s state-backed Citizens Property Insurance Corp. requires policyholders to purchase flood insurance through either NFIP or a private insurer, so affordable coverage is essential.”

A 2023 consumer survey from Triple-I and Munich Re showed that 78% of the 22% of homeowners who reported having a risk of flooding had purchased flood insurance. Of those with a flood risk, 35% purchased coverage through a private insurer, and 43% secured coverage through the NFIP.

“While market share for private flood insurers is growing (about a third of the U.S. market as of year-end 2022), private flood coverage may not be available or affordable for all homeowners seeking coverage,” said Friedlander.

What’s next?

The conservative group behind Project 2025 — the Heritage Foundation — published the presidential transition project as “a playbook for the first 180 days of the next administration,” according to its website.

Former President Donald Trump has denied any involvement with Project 2025. However, a CNN review discovered at least 140 people who previously worked in the Trump administration played a role in the transition project — and about 100 more had connections to both Trump and Project 2025.

Despite Trump and his campaign denying any involvement with Project 2025, many have speculated that his administration would implement aspects of the playbook if he wins the election in November.

Unrelated to Project 2025’s proposal to cut the program, the NFIP will lapse on Sept. 30, 2024, if Congress doesn’t reauthorize it. The program doesn’t technically have a specific expiration date, but it does have several legal provisions it has to meet to prevent expiration.

Reauthorization is a common process — Congress has reauthorized the program 30 times since the end of the 2017 fiscal year. If a lapse does occur, FEMA must stop selling and renewing flood insurance for participants.

Congress hasn’t given any indication it won’t reauthorize the program.

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