Shutdown cuts off flood insurance program during storm season

A lapse in the National Flood Insurance Program because of the US government shutdown threatens to snarl home sales in the nation's riskiest floodplains and leave some homeowners without coverage in the middle of hurricane season.

Without reauthorization, the program – which counts more than 4.7 million policies providing more than $1.3 trillion in coverage – cannot issue new policies or renew expiring ones. In areas that require flood insurance to close a loan, that's a problem. 

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As the government shutdown continues for a second week, with no sign of breakthrough on the horizon, the coverage gap is poised to keep widening. As many as 1,400 sales per day could stall or fall through without flood insurance, the National Association of Realtors estimates. 

"Each day that passes during the shutdown, potential real-life impacts will be felt in America's housing market, which accounts for nearly 20% of the US economy," said Shannon McGahn, the association's executive vice president and chief advocacy officer. 

Transactions are more likely to be delayed than scrapped outright, according to industry experts, as lenders relax requirements during the gap period. 

"It's not so much deals are being canceled right away, but as this goes on longer and longer it's going to be more people in limbo," said Daryl Fairweather, chief economist at Redfin. 

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More people will either go without flood insurance or be unsure of whether they are covered, according to David Maurstad, former senior executive of the program. 

"If there was a hurricane and you have a tremendous number of properties that are damaged, the confusion and the angst and anxiety people would have just gets ratcheted up during a time when they're already having the worst day of their lives," he said.

The situation could easily have been avoided, he added. "It's not like the entire budget: It's one program, and we knew what the deadline was."  

Senator John Kennedy, a Republican from Louisiana, has introduced two bills to reauthorize and extend the program apart from the bigger shutdown spending clash. So far, though, Republicans have maintained a united front in pressuring Democrats to pass a larger measure known as a continuing resolution, which would fund the government and extend NFIP authorization into next month – without breaking off individual programs to fund on their own.

"It's expired thanks to the Democrats," Kennedy said. "It's stupid."

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Republican and Democratic congressional leaders continued to blame one another for the shutdown, sticking to their their talking points and stances as the impasse entered its ninth day on Thursday. 

Senator Rick Scott, a Florida Republican, whose state leads the nation in NFIP coverage, said the lapse "could have a pretty big impact on home sales in Florida" and urged Democrats to pass the continuing resolution.

The program applies to just 4% of residential properties – but those are arguably some of the nation's riskiest. Floods are the most common natural disaster in the US, and they're not covered by most homeowners' insurance policies. 

Some of the fastest-growing American cities are also in low-lying zones on the coast. Flood losses in the US have been climbing as climate change loads the atmosphere with more moisture and amps up the rainfall associated with hurricanes and thunderstorms. 

Such storms caused more than $125 billion in damage in 2024 alone, according to federal data, largely tied to catastrophic rains from Hurricane Helene.

Just one inch of water can cost tens of thousands of dollars in damage. And 1,400 stalled or thwarted home sales a day adds up.

"It's hard to believe how many homes we're talking about," said Neil Alldredge, president and chief executive officer of the National Association of Mutual Insurance Companies, which represents six of the 10 largest property and casualty insurers in the US.

"If you're living near a river or stream, you're probably going to flood at some point in time," Alldredge said. "And you probably would have the potential to flood at a higher level than you've seen before."

Fannie Mae and Freddie Mac, the government-controlled mortgage financiers, will accept evidence that an eventual NFIP policy is in the works, including a completed insurance application and proof that the premium has been paid or that the seller's policy has been transferred to the buyer. Sellers and loan servicers are required to follow up once the program is renewed to provide final evidence of coverage.

With its subsidized premiums and contested risk maps, the flood insurance program has long been criticized for doing too little to discourage people from living in risky areas. But according to federal estimates, NFIP has still managed to save the US about $1.7 billion a year in avoided flood losses.

That's one reason Congress has gotten into the habit of repeatedly extending NFIP on a short-term basis while seeking a long-term solution for the viability of the program.

A growing number of private insurers and intermediaries – including Neptune Insurance Holdings Inc., which raised $368 million in a US initial public offering last month – are offering flood coverage. But they still represent just a sliver of the market compared with NFIP. And premiums on the private market can be considerably higher than NFIP's rates, driving up costs for aspiring homebuyers who need insurance to secure a mortgage for a pending sale.

"There might be private market solutions that are double or much more expensive," said Charlie Sidoti, executive director of the nonprofit insurance think tank InnSure. "That makes the economics of a deal undesirable or undoable."