Congress and the National Flood Insurance Program

Imagine that you’re poised to close on your dream home, and your mortgage hinges on flood insurance. Then, Congress, during a federal shutdown, fails to extend the National Flood Insurance Program (NFIP). Suddenly, that sale stalls, maybe indefinitely. Thousands of such closings could collapse if lawmakers don’t act soon, and this is not an abstract warning. Almost 1,500 real estate closings a day were impacted the last time the National Flood Program was shut down.

This is not the only issue. A closer look at my critiques of the NFIP reveals two deep, linked flaws that magnify the financial risk carried by homeowners, small businesses, and communities. On the one hand, the program’s coverage limits are hopelessly outdated. A detailed analysis shows that the NFIP’s $250,000 cap on residential structural coverage and $100,000 for contents fall far short of actual replacement costs in many markets. Those limits were set in an era of lower real estate and construction costs, and they now leave owners underinsured by hundreds of thousands of dollars. By some calculations, the inflation-adjusted equivalent of those limits today would be more than double what they currently allow, and that still wouldn’t reflect how construction costs have surged faster than general inflation. I wrote about these issues in Modernizing the National Flood Insurance Program: A Call for Higher Coverage Limits.

On the other hand, even when losses are plainly legitimate, the NFIP too often allows technicalities to override substance. A recent court decision, Woodland Villas Condominiums v. Wright National Flood Insurance Company, ¹ illustrates this grim reality. The condominium association was denied full payment for flood damage because its “Proof of Loss” form was signed by an architect rather than by an authorized board member under penalty of perjury or notarization—even though the damage itself was undisputed. The flood insurer prevailed by insisting on rigid formal compliance, not by demonstrating fraud or contesting the loss. I wrote about this issue in NFIP Escapes Payment with Form Over Substance Rules, and yesterday’s post, Is Suing National Flood Worse Than the Actual Flood.  This kind of formality trap leaves flood policyholders exposed to an insurance dispute system with no practical method to challenge decisions or obtain justice.

Stretching further into the current public policy implications, these problems contribute to systemic dysfunction in the real estate market. Homebuyers may be unable to secure mortgages in flood-prone zones when flood insurance coverage expires or becomes uncertain. Real estate transactions that depend on flood insurance for closing will fall through. Title companies, lenders, and communities all feel the cascade. If Congress fails to renew or reform the NFIP in time, many closings already scheduled could unravel, costing families, realtors, and local economies.

The truth is that Congress must step up and not just with a stopgap extension, but with real reform. The program needs modern coverage limits that reflect today’s construction cost realities, and not caps established over 20 years ago. It also needs clearer, fairer claims rules that prioritize actual losses suffered, rather than procedural loopholes. Without such changes, the NFIP will remain a hollow promise in a flood, one that fails those it claims to protect.

If you live in a flood-risk area, have a planned home purchase, or care about your community’s resilience, now is the time to raise your voice. Tell your representatives: don’t let the NFIP lapse, and don’t let it survive unchanged. Demand a version that actually safeguards people, not just paperwork. Taking five to fifteen minutes to write simple emails to your Representative and Senators is all it takes to bring this issue to their attention.

Thought For The Day 

“Nobody made a greater mistake than he who did nothing because he could do only a little.” 
 —Edmund Burke

¹ Woodland Villas Condominiums v. Wright National Flood Ins. Co., No. 24-30722 (5^th Cir. May 1, 2025).