Hazard-specific pathways shape the flood protection gap in the USA

Floods are a familiar force of nature, but the financial aftermath of a flood is a complex puzzle of who pays and who does not. When a home is damaged by rising water, the cost does not simply vanish; it must be absorbed by someone. In the United States, standard home insurance policies generally do not cover flood damage, leaving a gap that is often filled by a federal program called the National Flood Insurance Program, or NFIP. However, not every homeowner buys this insurance, and even those who do may not have enough coverage to pay for the full damage if the water rises high enough. This creates a situation where the financial burden of a flood is split in different ways: sometimes it falls entirely on the homeowner, sometimes it is shared between the homeowner and the insurance program, and sometimes the insurance program itself faces a strain because the money collected in premiums is not enough to cover the expected payouts. Understanding exactly where these financial gaps exist and why they happen is crucial for protecting communities and ensuring that the system remains stable.

A team of researchers has now mapped these financial gaps across the entire United States, moving beyond simple averages to see how different types of flooding create different problems. By combining detailed computer models of rain, river, and coastal flooding with real-world data on buildings and insurance policies, they traced exactly how expected losses are distributed. They found that the way a flood hits a community—whether it is heavy rain falling on the ground, a river overflowing its banks, or the ocean surging inland—determines who ends up paying the bill. The study reveals that while coastal areas have higher rates of insurance participation, they still face significant financial pressure within the insurance system itself. In contrast, inland areas, where rain and river floods are common, suffer from a massive lack of insurance coverage, leaving the vast majority of the financial burden to fall directly on property owners and local communities.

The researchers built a detailed picture of the United States by looking at over 12 million buildings that face some risk of flooding. They calculated the expected annual loss for each building, which is a measure of how much damage a building is likely to suffer on average over a year, considering all possible flood events. They then matched these buildings with records from the National Flood Insurance Program to see which ones were insured and how much coverage they held. This allowed them to sort every dollar of expected loss into one of three buckets. The first bucket is the "public shortfall," which represents money that is never covered by insurance because the homeowner did not buy a policy, or because the damage exceeded the policy limits. This money falls directly on the property owner or the community. The second bucket is the "NFIP shortfall," which represents the difference between what the insurance program is expected to pay out and the money it has collected in premiums for those specific buildings. This indicates pressure on the insurance pool itself. The third bucket is the money that is fully covered by premiums, where the insurance program is financially balanced.

The results show a stark divide between the coast and the interior of the country. Nationally, the public shortfall accounts for 81% of all expected flood losses, meaning that the vast majority of flood damage is not covered by insurance. However, the reasons for this gap differ dramatically depending on the type of flood. For coastal flooding, which includes surges from the ocean, about 59% of exposed buildings have flood insurance. Despite this high participation, the insurance program still faces a shortfall of 32% of the expected coastal losses. This means that even in areas where people are buying insurance, the premiums collected are not enough to cover the expected payouts, creating a strain on the system. In contrast, for inland flooding caused by heavy rain or overflowing rivers, the situation is reversed. Only about 16% to 20% of exposed buildings have insurance. Consequently, the public shortfall for these hazards is enormous, reaching 87% for rain floods and 85% for river floods. In these inland areas, the primary problem is not that the insurance program is underfunded, but that most people are not insured at all, leaving them to bear the full cost of any disaster.

The study also highlights that the location of the financial gap is not random. For rain and river floods, nearly 80% of the uncovered losses occur in areas that are not officially designated as high-risk zones on federal flood maps. This suggests that the current system, which often mandates insurance only for homes in mapped high-risk areas, is missing a huge portion of the risk. Many homes that are damaged by rain flooding are outside these zones, so there is no requirement to buy insurance, and few people choose to buy it voluntarily. On the other hand, coastal losses are more closely aligned with the mapped high-risk zones, which explains the higher participation rates there. Yet, even in these well-mapped coastal areas, the insurance program faces pressure because the cost of covering these risks is high.

When the researchers looked at specific neighborhoods, or census tracts, they found that similar amounts of financial loss could result in very different problems depending on the hazard. Some areas are characterized by a "major burden, mostly uncovered" regime, where huge amounts of money are lost because no one has insurance. These areas are common in the interior and Appalachian regions. Other areas, particularly along the Gulf and Atlantic coasts, fall into a "major burden, substantially insured" regime. Here, most people have insurance, but the system is under pressure because the premiums collected are not enough to cover the claims. This distinction is vital because it shows that a single solution cannot fix the flood protection gap everywhere. In inland areas, the focus needs to be on getting more people to buy insurance and providing better information about the risks of rain and river flooding. In coastal areas, the focus must shift to ensuring that the insurance premiums are sufficient to cover the expected costs, perhaps through better risk pooling or financial support, so that the program does not become unstable.

The study confirms that the financial protection gap is not a single, uniform problem but a collection of different challenges shaped by the type of flood and the local insurance culture. While the total expected annual loss for the country is estimated at $25.7 billion, the way this loss is distributed reveals that 81% of it remains outside the insurance system, falling on property owners. The remaining 19% enters the insurance system, but of that, a significant portion creates a deficit for the program, particularly in coastal regions. The researchers note that their findings are based on reconstructed data and models, and they do not account for private insurance or other forms of recovery like government disaster aid. However, the patterns they identified are robust and suggest that effective policy must be tailored to the specific hazard and the local context. Simply raising premiums or expanding coverage without addressing the underlying differences between rain, river, and coastal risks will not close the gap. The path forward requires understanding that for some communities, the problem is a lack of insurance, while for others, it is the cost of the insurance itself.