Foon Rhee

How badly is California getting soaked on flood insurance?

Rescue crews take out residents from a flooded neighborhood in San Jose in February.
Rescue crews take out residents from a flooded neighborhood in San Jose in February. AP file

As California moves into rainy season, a growing number of voices are urging the state to explore getting out of federal flood insurance and creating its own program.


They point out that the National Flood Insurance Program is inundated with debt, and that California residents pay far more into the program than they are getting back.

Among the loudest proponents of this small version of Calexit is Nicholas Pinter, a professor at UC Davis and associate director of its Center for Watershed Sciences. He and his colleagues did some eye-opening research that showed between 1994 and 2014, California policyholders received in claims paid only 14 percent of the premiums they sent in. Payouts were only 9 percent of premiums in the Central Valley, the state’s most flood-prone area.

Over those 20 years, California’s imbalance totaled $3.3 billion; only Florida got soaked more, $12.9 billion. California ranks ninth worst in the nation by percentage of payouts. On the other side of the ledger, payouts totaled 560 percent of premiums in Mississippi and 382 percent in Louisiana.

Pinter says that California can get a much better deal with its own flood insurance program – and use the savings to reduce premiums and also to expand flood prevention and floodplain management projects. He and his colleagues estimate that there could be about $200 million a year available, minus administrative costs of 10 to 15 percent.

“It’s a huge potential money maker for California,” he says.

Pinter told me that he has received positive feedback at several events, and that a legislator he doesn’t want to name yet is interested in introducing a bill next year to explore the idea.

The state Department of Water Resources said in a statement that it “may consider investigating the feasibility of a state flood insurance program as one of the many options for financing a comprehensive flood management program for California.”

The Public Policy Institute of California also says that with one in five residents and more than $580 billion in property in flood zones and with the NFIP in jeopardy, officials may need to consider a state-run insurance program.

But state Insurance Commissioner Dave Jones pours cold water on the entire idea. He told me the UC Davis study “fundamentally” misunderstands insurance: It’s not an investment where you expect to get repaid.

“We’re one catastrophic flood from being a net beneficiary,” Jones says – for instance, if Oroville Dam had completely collapsed in February, or if the levees protecting Sacramento were to give way.

And while he agrees that NFIP must be improved, he points out that its rates are subsidized and that it’s backed by the full faith and credit of the U.S. A California-only program would have to be subsidized and backed by the state’s general fund, Jones said.

“Flood insurance is going to be expensive, and a state takeover is not going to make it less expensive,” he said.

Statewide, as of October 2016, there were 290,000 NFIP policies with $213 million a year in premiums and $83 billion in covered property. Sacramento County is at the top of the list, with more than 55,000 policies, $26 million in premiums and $17.5 billion in coverage.

Federal officials also warn against states leaving NFIP, which is part of the Federal Emergency Management Agency. They point out that New York and New Jersey also paid more into NFIP than they pulled out – until Superstorm Sandy in 2012 led to $8 billion in claims paid.

While states aren’t required to be in NFIP, if they aren’t, residents and communities in flood zones aren’t eligible for federal home loans or mortgage insurance, or for federal disaster aid.

Nationally, NFIP underwrites nearly 6 million policies, takes in $3.5 billion a year in premiums and covers more than $1.25 trillion in property. But it is nearly $25 billion in debt.

The 49-year-old program’s problems are pretty straightforward. Too few property owners who need flood insurance are buying it. (Most standard homeowner and renter policies don’t cover flood damage). NFIP doesn’t charge enough in premiums to cover its costs. And it must cover properties – in coastal areas at risk of devastating storm damage, for instance – that private insurers never would.

Now, everyone is waiting to see what Congress and the Trump administration do to fix the program. Its five-year authorization expired Sept. 30, but was extended until Dec. 8.

On Oct. 26, President Donald Trump signed a $36.5 billion disaster relief package that includes $16 billion in debt relief for NFIP so it can pay projected Hurricane Harvey claims. That’s only a stopgap, not a long-term solution.

In 2012, Congress tried to strengthen NFIP by phasing out subsidies for buildings in high-risk flood zones and eliminating them entirely for properties with repeated claims. But policyholders squealed over steep premium increases. So in 2014, Congress capped the increases at 18 percent a year for primary residences. But to make up for the loss in revenue, all policyholders are paying a surcharge.

My East Sacramento house is in a low- to moderate-risk flood zone and qualifies for the most favorable premium. Still, my NFIP bill has gone from $414 in 2014 to $450 this year, a 9 percent increase.

So I’m conflicted. For my personal finances, I don’t want premiums to rise too much. But as public policy, I know that federal subsidies are too high and encourage people to build in places they shouldn’t. If there’s a way to design a state-run program that works, I’m all for it.

Pinter says he hopes that next year, the state starts a serious study that includes the insurance commissioner, Central Valley leaders and other stakeholders. “Our position,” he said, “is that what Washington can’t or won’t fix, California can and should.”

Jones says he’ll help DWR with a study, but argues it’d be smarter for the state to focus on making sure that the costs of potential damage are included in local land-use decisions in floodplains and in areas at risk of wildfire.

“Let’s not build in places that are going to flood or burn,” he said.

Whatever the debate on flood insurance, you can’t argue with that.

Foon Rhee: 916-321-1913, @foonrhee


NFIP policies





$17.6 billion

$26.3 million

Los Angeles


$9.8 billion

$24.4 million

San Joaquin


$2.7 billion

$5.2 million



$1.9 billion

$2.9 million



$1.2 billion

$3.3 million



$1.6 billion

$3.2 million



$540 million

$1.3 million



$551 million

$1.1 million

El Dorado


$151 million