Flood Insurance Is Becoming Unaffordable—Can Community-Based Catastrophe Insurance Help?

A green and red house and an RV are pictured among the trees, surrounded by multiple feet of floodwater. — Credit: Serge Lavoie on Pexels

On Valentine’s Day 2025, roughly nine inches of rain began falling in Kentucky, at least eight inches in Tennessee, and five in Virginia. Adding to the torrent was the spring snowmelt and soil unable to adequately absorb moisture due to being thinned by mining.

Rivers overflowed. Landslides overtook homes. More than 300 roads were closed across Kentucky, hundreds of families were displaced, and more than 1,000 people had to be rescued. Twenty-one people died in Kentucky and one person died in Georgia, all while many communities were still struggling to recover from Hurricane Helene last September.

Then there’s the insurance issue. Flood insurance is essential for families to protect their homes, which are often people’s most valuable assets. But as climate change worsens disasters, including floods, across the globe, home insurance is becoming increasingly expensive and difficult—sometimes impossible—to acquire. This renders recovery from a disaster prohibitive.

The Issues with Flood Insurance

FEMA’s National Flood Insurance Program (NFIP) provides flood insurance to qualified residents (those who have a government-backed mortgage) who live in participating communities by way of a network of insurance companies. But in 2023 FEMA recalculated its prices after updating the flood maps it uses. The cost for some policyholders increased more than 600 percent.

Peter Waggonner, public policy manager at New Orleans’s Coalition for Sustainable Flood Insurance, told the radio program Marketplace that the higher premiums are simply unaffordable for some households. His coalition wants the government to subsize the cost of NFIP flood insurance (which provides nearly all of the nation’s flood insurance policies) for low-income homeowners.

“They could receive a discount from that based on their ability to pay so they could stay in their home and continue to serve the community that they live in,” Waggonner said.

While subsidizing would be a good start, the issues with flood insurance reach beyond federal policies and into the private insurance market.

The cost for some policyholders increased more than 600 percent.

According to a 2022 survey from Fannie Mae of nearly 4,000 residents in high- and medium-risk flood areas, 56 percent of respondents with varied flood insurance policies said that their premiums increased over the previous year. Twenty percent of respondents reported a “significant” increase in their overall homeowners’ insurance premiums, too.

Areas in Kentucky, Louisiana, Florida, Ohio, and Texas saw double-digit or triple-digit increases in the cost of their flood insurance, according to the survey. Residents of Jupiter Inlet in Florida’s Palm Beach County saw an average increase of 342 percent.

On top of that, property values in flood-prone areas are declining due to severe weather events. As of July 2024, roughly 9 percent of all US properties were at risk of flooding. About 92 percent of those properties were not covered by an active NFIP policy as of May 1, 2023.

Properties within communities of color, communities comprised mostly of primary (versus secondary) residences, and properties that are inland versus coastal are less likely to be covered by an NFIP flood policy. This last point is particularly salient for inland communities like western North Carolina that have been hit by flooding from extreme rainfall, rather than from coastal weather events.

Community Suffering, Community Solutions

It’s more than just homeowners and families who are impacted by flood damage without insurance. Communities suffer, too.

As the Nature Conservancy wrote, “From rural river towns to big cities, significant and repeated flood events can destroy wealth among the uninsured and depress growth for years, if not decades, as the community recovers. In severe cases where recovery isn’t possible, relocation is yet another possible financial burden on the uninsured.”

“Flood events can destroy wealth among the uninsured and depress growth for years, if not decades, as the community recovers.”

According to a 2021 report from risk strategy firm Marsh & McLennan Companies, and the Wharton Risk Management and Decision Process Center at the University of Pennsylvania, insurance plays “a critical role in the recovery from disasters, but many households and small businesses do not have sufficient savings to fund repair and rebuilding on their own.”

Because grants, loans, and other forms of disaster aid can be slow and insufficient, “insurance is a vital source of adequate and immediate recovery funds, yet many remain uninsured against disasters—referred to as the protection gap,” according to the report. When properties are insured, “overall community recovery improves and helps to reestablish the local economy.”

That’s why, the report’s authors argue, new models of catastrophe insurance have to be explored and implemented. Community-based catastrophe insurance (CBCI) is one such avenue.

According to the report, “In a CBCI program, a community—loosely defined as any community organization, special-purpose district, or public entity—arranges insurance protection on behalf of its members or to the benefit of its members. By securing coverage for a group of properties, CBCI has the potential to help close the disaster protection gap, improving financial recovery for communities.” Furthermore, “CBCI could also be designed to provide more affordable disaster insurance coverage and could be linked directly to financing approaches for community-level hazard mitigation.”

The Hope of De-growth

The report outlines several structural approaches to creating and delivering a CBCI program, but importantly, notes that insurance doesn’t stand alone: “The community should also be able to implement risk reduction measures.” In order to mitigate flooding risks, floodplains have to be protected, stormwater runoff has to be slowed and reduced, and, perhaps, de-growth has to be embraced.

“By securing coverage for a group of properties, [community-based catastrophe insurance] has the potential to help close the disaster protection gap.”

As defined by The Swaddle, de-growth “suggests a series of changes in both individual lifestyles and existing political and economic systems to support a model of living that can halt the earth’s current rate of warming and depletion of natural resources.” De-growth is a longer-term plan addressing and responding to environmental limits, and it would mean a radical change in thinking.

This reduction in economic development can be a hard sell, especially to those invested in real estate. But considering that development in floodplains only exacerbates the climate crisis and puts residents at increasing risk, a change is necessary. Until de-growth takes hold, CBCIs—an affordable, proactive, community-based insurance structure—can be a good interim solution.