Flooding remains the most destructive and costliest in the United States. Among the 371 billion-dollar climate disasters in the United States since 1980, 288 (78%) is directly related to flooding. Floods cost $1.37 trillion in losses (in U.S. 2023 dollars adjusted by the Consumer Price Index [CPI]) and caused 9,722 fatalities. With climate change and sea levels rising, floods are becoming more and more frequent and costly. The pressing issue is how to manage flood risk. The current risk management framework in the United States, designed and implemented by the federal government, has three fundamental pillars: flood risk information infrastructure, flood insurance, and government aid. The first pillar, the flood risk information infrastructure, guides decision-making using Federal Emergency Management Agency (FEMA) flood maps that visually depict flood risks. The second pillar, flood insurance, managed by the National Flood Insurance Program since 1968, aids in addressing ex ante flood-related financial risks. The third pillar, government aid, provides postflood support through programs such as FEMA’s Individuals and Households Program and the Small Business Administration’s disaster loans. Though vital for flood risk mitigation and economic decision-making, each pillar confronts multiple challenges. FEMA flood maps face challenges in mapping accuracy, regular updating, and coverage, suggesting a need for ongoing innovation and cooperation among government agencies, research entities, and private sectors. FEMA flood insurance has its issues as well. Its premium, marked by a multifaceted risk-rating system, often doesn’t mirror actual loss potential, leading to criticisms. Despite its role as a financial buffer, flood insurance’s limited coverage and low adoption rates highlight public reluctance about it. Government aid, meant for postdisaster recovery, carries unintended side effects such as spatial discrepancies, increased inequalities, and potential deterrence from buying insurance, underscoring the delicate balance between policies and societal impacts. Furthermore, the interplay between the three pillars also creates enormous complexity in practice and may create unintended consequences. One example is the free-riding problem due to the coexistence of ex ante flood insurance and ex post government aid. Therefore, it is crucial to provide a comprehensive overview of the flood risk management system for both academics and policymakers.
