California May Leave Federal Flood Insurance Program And Go It Alone

This winter California dodged what could have been the country’s biggest dam disaster.

Floodwaters threatened to top Oroville Dam. Helicopters dropped giant boulders to plug up an emergency spillway that was failing. Emergency officials said a 30-foot wall of water could have poured out of the lake, putting the lives of more than 180,000 people at risk.

The threat of dangerous flooding is by no means over. More than 7 million Californians live in flood-prone areas. Many of them depend on the National Flood Insurance Program, or NFIP, to cover their losses. 

The number of Californians exposed to flooding is likely to increase because of increasing population and development in the floodplain.   Graphic / California Department of Water Resources

But California is considering a radical move: pulling out of the program.

The state is drawing on research by Nicholas Pinter with the UC Davis Center for Watershed Sciences. Pinter looked at NFIP data back to 1994. He found that California pays significantly more in insurance premiums than it receives in damage payouts.

“California has paid in more than $3 billion more than its received in payments over the last 21 years,” says Pinter.  “That is a massive investment that could have been used for other higher priorities.”

California wasn’t just lucky enough to have escaped storms. Some of the state’s most damaging floods happened during that time. Pinter says of 538 jurisdictions in California that pay premiums to NFIP, only 18 ever received payouts that exceeded premiums. 

Pinter says the state should pursue its own insurance program. 

 State flood managers are sympathetic.

“We’ve been proactive in California and made a lot of investments to better reduce risk for flood events,” says Mike Mierzwa the state’s lead flood management planner with the California Department of Water Resources.

“What that means to the average California policy owner, is that they are paying more for protection than they probably actually need.”

For example, premiums for some farmers in the Central Valley can add up to more than the structures they’re insuring are worth. Some farmers have torn down buildings rather than pay, says Ric Reinhardt with MBK Engineers.

“FEMA’s flood insurance rates are really developed for riverine systems that don’t have levees,” says Reinhardt, who is a member of the state’s Agricultural Floodplain Ordinance Task Force.  “The actuarial process that FEMA uses to develop their rates doesn’t consider the existence of the levee, so while we have frequent floods out here, we don’t have frequent claims.”

Reinhardt says without a change; a state-run program is a better option. 

Winter storms flooded this field in Marysville near the Yuba River. Bob Moffitt / Capital Public Radio

Mike Mierzwa notes that federal insurance has its benefits. States get help, and money, for projects that lower flood risk. But he says they don’t justify the cost.

“There are other services associated with National Flood Insurance Program that come back to California, however we can improve upon that and get more out of those services, if we were to have a state flood insurance program,” says Mierzwa.

Federal Emergency Management Agency officials are aware of California’s discontent. Roy Wright, who leads FEMA’s Federal Insurance and Mitigation Administration, acknowledges there are problems. But he says California needs to look beyond what it receives in damage payouts.

“Just because you haven’t had a payout doesn’t mean that you haven’t been getting value out of this,” says Wright. “Frankly, it takes one event to move you from being a net payer, to a net receiver.”

Wright says New York and New Jersey were net payers, then Hurricane Sandy hit and they got more than $8 billion from NFIP. If California decides to pull out, it won’t be easy. The state would have to craft its own insurance program. That could take a decade.