Floods don't respect state borders — should flood insurance?
Flooding caused by Hurricane Debby left homes in the in Laurel Meadows residential community surrounded by flood waters in Sarasota, Florida. iStock image
Story highlights
- A new study suggests that shrinking the National Flood Insurance Program into separate, state-run systems could actually make it harder to recover from major disasters.
- The researchers explain why spreading risk across the entire country makes insurance programs more financially resilient.
As flood disasters become more frequent and expensive, policymakers are debating whether states should take on more responsibility for flood insurance instead of relying on the federal government.
But new research from Arizona State University and Columbia University suggests that shrinking the National Flood Insurance Program into separate, state-run systems could actually make it harder to recover from major disasters.
The study, recently published in PNAS, introduces the idea of hyperclusters — large, connected flood events driven by the same weather systems — and shows why spreading risk across the entire country makes insurance programs more financially resilient.
ASU News spoke with Adam Nayak, incoming assistant professor of civil and environmental engineering at Stanford University, who led the research as a Columbia University doctoral student, and Upmanu Lall, professor and founding director of the ASU Water Institute at the Julie Ann Wrigley Global Futures Laboratory, about what their findings mean for flood insurance — and for how the nation prepares for a changing climate.
Question: Flood insurance has become a major policy issue. What question did your research set out to answer?
Nayak: Given recent proposals to shift disaster management onus from the federal government to states, we wanted to test a simple idea: Is flood insurance stronger when all states share the risk, or would it work better if each state managed its own program?
Insurance works best when it spreads risk across lots of people facing different kinds of hazards. If one state experiences a devastating flood, losses can be balanced by premiums collected from places that weren't affected.
But if every state had to stand on its own financially, states that experience large or repeated floods could quickly find themselves unable to cover claims. Our research asked whether state-based systems would really be more resilient, and the answer was generally no.
Q: One of your biggest findings is that a national insurance pool is much more resilient than separate state-run programs. Why?
Lall: Think about insuring 20 houses on the same street. If a major flood hits that neighborhood, all 20 homes could be damaged at once. The insurance company suddenly owes millions of dollars, even though it may have collected only a fraction of that in premiums.
Now imagine insuring homes across the entire country instead. A flood in Louisiana doesn't mean homes in Washington or Arizona are flooding at the same time. By spreading risk across many different places, the system is much less likely to face catastrophic losses all at once.
That's essentially why national risk pools are more financially stable than smaller state-based programs.
Q: Your paper introduces the term hyperclusters. What does that mean?
Nayak: We often think of floods as isolated disasters, but they're connected by the same weather and climate patterns.
A hurricane might cause flooding along the Gulf Coast, then continue inland and trigger heavy rainfall hundreds of miles away. Large climate patterns like El Niño can also produce a series of floods over weeks or months.
We call these connected events hyperclusters. They're linked by the same atmospheric drivers, even if they're treated as separate disasters.
Recognizing those connections gives us a more realistic picture of how flood risk and insurance losses can build over time.
Q: Does that mean simply charging higher insurance premiums won't solve the problem?
Lall: Higher premiums are only part of the equation.
Insurance companies also buy reinsurance — essentially insurance for insurers — to make sure they have enough money to pay claims after catastrophic events.
The challenge is that today's reinsurance contracts are largely built around individual disasters. But we're increasingly seeing multiple connected events occur close together. If those broader patterns aren't considered, insurers can still face major financial strain, even with higher premiums.
The goal isn't simply to charge people more. It's to better match the financial system to the way climate risks actually occur.
Q: What does this research tell us about preparing for future climate disasters?
Nayak: Flood insurance is just one piece of the puzzle.
As climate-driven disasters become more frequent, we also need to think about where we build, how we invest in infrastructure, and how we reduce risk before disasters happen.
Insurance helps communities recover after an event. But long-term resilience also depends on smarter planning, better mitigation strategies and recognizing that many climate hazards don't happen in isolation.
The more we understand how these events are connected, the better equipped we'll be to build systems that protect both people and public resources.
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