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April 3, 20260 citationsOpen Access

Quantifying the Economic Impact of the Residential Multi-Hazard Protection Gap on U.S. Taxpayers and NFIP Solvency

Key Points

The aim is to quantify the economic impact of the residential property insurance protection gap on taxpayers and federal funding mechanisms.
Examined the residential protection gap from 2017 to 2023
Analyzed federal fiscal liabilities due to uninsured losses
Evaluated contributions from FEMA, SBA, HUD, and NFIP
The protection gap consistently exceeded 40% of total economic loss in major events
In some events, the gap approached 80% of economic loss
Federal government largely covered the uninsured losses without charging premiums

Abstract

The residential property insurance protection gap — the difference between total economic loss and insured loss in catastrophic events — is not a market anomaly. It is a structural and growing federal fiscal liability. Across the period 2017–2023, the protection gap in major U.S. catastrophic events consistently exceeded 40 percent of total economic loss, and in some events approached 80 percent. The federal government has absorbed the majority of this uninsured residual through FEMA Individual Assistance, SBA disaster loans, HUD CDBG-DR grants, and NFIP payouts — without charging a premium, without requiring pre-event mitigation, and without any mechanism for reducing future federal exposure on the same properties.

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