Hurricane Helene is exposing the broken flood insurance system

Asheville, North Carolina is a mountain city more than 2,000 feet above sea level, and about 300 miles from the coast. That still didn’t protect it from flooding. Hurricane Helene poured torrential amounts of rain on the city—three-day rain totals ranged from 13 to more than 30 inches of rain. All that rain caused catastrophic flooding and a death toll that has reached at least 133 (there is not yet a monetary figure for the damages)—and in a state where most homeowners don’t have flood insurance.

Just 2.6%, or about 115,000, of North Carolina’s 4.3 million properties have flood insurance, according to an analysis from Neptune Flood Insurance. That’s a private insurance provider, but the analysis used data from the National Flood Insurance Program, a federal program to provide flood insurance to those who live in the greatest risk areas. (It’s unclear how many homeowners have private flood insurance, but across the country, private flood insurance makes up a “tiny fraction of active flood insurance policies,” per Policygenius.) 

In Buncombe County, North Carolina, where Asheville is located, less than 1% of households there have an NFIP policy, says Monica Ningen, CEO Property & Casualty Reinsurance, US at insurance company Swiss Re.

North Carolina isn’t alone: Across the U.S., about 4% of homeowners have flood insurance, according to the Federal Emergency Management Agency (FEMA), which administers the National Flood Insurance Program. And flood insurance coverage has actually been decreasing, even as climate risks grow.

“The populations of Georgia, South Carolina, and North Carolina have grown about 10 to 15% over the last ten years, yet the number of flood policies issued by the National Flood Insurance Program has actually gone down,” Ningen said in a statement. Neptune’s analysis found that in North Carolina, flood insurance coverage decreased 2.5% between June 2023 and June 2024.

Why do so many Americans lack flood insurance?

There are a few reasons why so many Americans aren’t covered by flood insurance. While many banks require you to have homeowners insurance as a condition of your mortgage, flood insurance isn’t required—unless you live in a FEMA-defined “high risk” area and have a federally-backed mortgage. (FEMA’s flood maps, however, are often outdated, inaccurate, and incomplete, not necessarily accounting for climate change). 

Some homeowners may think that flood insurance is included in their homeowner insurance plan and so assume they’re covered—but it’s not. Others may not know they live in an area at risk of flooding. And those that do understand they’re at risk may still pass on flood insurance because it can be unaffordable. 

On average, flood insurance costs $819 a year, according to a NerdWallet analysis. It’s also been getting more expensive lately (annual premium hikes for NFIP are limited to 18% by law) because of variables like flood frequency and rising costs to rebuild. Even on FEMA’s website, the agency acknowledges that flood insurance is getting more expensive on average. “FEMA recognizes and shares concerns about the cost of flood insurance and how higher premiums can affect communities,” the site reads. 

How flood insurance is broken

The reason flood insurance is so expensive is because of the type of risk it’s managing. In the insurance world, there are two types of risk, says Seydina Fall, a senior lecturer at Johns Hopkins Business School: independent risks, and common risks.

An independent risk is something like a burglary, which is covered by most homeowners insurance policies. That risk is “independent” because when it happens to one house, it doesn’t mean the next door neighbor is just as likely to experience it. “You can use statistical measures to estimate [those risks] quite accurately, and have some reserves in place,” Fall says.

A flood, though, is a common risk: if it happens to one house, it’s likely impacting multiple homes. “Those risks are hard to have reserves against, because a 1% chance of an outlier event happening may completely wipe [the insurance company] out,” he adds.

From an insurance company’s perspective, offering that kind of insurance is no longer profitable—disaster insurance always came with a higher risk of insurance reserves being wiped out, but now, more homeowners than ever need flood insurance, and floods are more common, making that risk for insurance companies even larger. They either have a hard time estimating the risk, or the premiums would need to be so high that most homeowners wouldn’t be able to afford it. In Florida, property insurance is already four times the national average, and still skyrocketing. 

How can we fix disaster insurance?

This issue of profitability and risk management is an issue with disaster insurance in general, Fall notes. From the insurance company’s perspective, addressing this issue needs innovation, he says, to develop products that match these emerging risks. (Similar issues are cropping up around fire insurance, specifically in wildfire-prone areas like California; this summer, Liberty Mutual announced it wouldn’t renew fire insurance for about 17,000 California homeowners.)

That innovation might look like reimagined policies that “break down the risk into smaller bite sizes.” Flood insurance policies might specify a certain level of water rise, or only cover damage when wind speeds reach a certain threshold.

That “micro-insurance” approach might mean more kinds of policy options for homeowners, but it could also still leave millions on the hook for the damage their houses incur. Even one foot of flooding in a home can be incredibly, and expensively, damaging, destroying electrical outlets and HVAC systems.

As climate change means more intense storms and more frequent instances of flooding, experts say there’s a need to update flood maps and for residents across the country to assess how vulnerable they are to these disasters. Asheville itself was a so-called “climate haven,” which underscores just how vulnerable every city is to the impacts of climate change. 

In some instances, insurance companies are actually leaving high-risk areas like Florida and California. The government doesn’t necessarily have the funds to step in, either. “The policy debate is how much flood risk should be borne by policyholders versus general taxpayers,” Fall says. “Yes, there’s government insurance, but it’s not profitable for them either.” The National Flood Insurance Program has a current debt of $20.5 billion, in part because of increased events like hurricanes. 

That shows the need to not only think about how to manage these risks after the fact, but how to become more resilient against them in the first place. “Ultimately, we have to take climate change more seriously in terms of mitigating these disasters, through building codes, building in different ways, and doing what we can to reduce greenhouse gas emissions,” Fall says. “There’s a lot of work that needs to be done over and above providing insurance—policy work that’s more focused on the health of the planet.”