The National Flood Insurance Program
The National Flood Insurance Program aims to reduce the impact of flooding on private and public structures. It does so by providing affordable insurance to property owners and by encouraging communities to adopt and enforce floodplain management regulations. These efforts help mitigate the effects of flooding on new and improved structures. Overall, the program reduces the socio-economic impact of disasters by promoting the purchase and retention of general risk insurance, but also of flood insurance, specifically.
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Previously reported – June 2018
Hurricane Season Has Begun. Do You Need Flood Insurance?
The Atlantic hurricane season is here, and with it the threat of storm-related flooding. So, homeowners may want to buy flood insurance, if they don’t already have coverage. Hurricane season runs from June through November. The National Oceanic and Atmospheric Administration has forecast a “near- or above-normal” hurricane season this year, with one to four “major” hurricanes expected. Standard homeowner policies typically don’t cover damage from floodwaters resulting from rising tides, flash floods or overflowing streams. To get flood coverage, you’ll need to buy a separate flood policy. Most flood insurance is sold through the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency and covers about five million policyholders. A few private companies also sell coverage.
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Previously reported – July 2018
Long-term NFIP reauthorization is essential
The National Flood Insurance Program (NFIP)’s five-year authorization originally expired on September 30, 2017. Congress had not agreed to reforms in time for a reauthorization bill to be signed into law by its expiration date, so it was included in a short-term extension of federal government spending, an ominous sign for an already-troubled program. The program was then subjected to four additional short-term extensions between December and March. In March, during the debate over the omnibus appropriations package to fund the government for the rest of fiscal year 2018 (FY18), Congress decided to separate the NFIP from the appropriations process and extend it alone until July 31, 2018, while the rest of the government appropriations were made to last through the end of FY18.
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Previously reported – August 2018
Your flood insurance premium is going up again, and that’s only the beginning
The bottom line: your flood insurance premium is going up again — and under a policy change the Federal Emergency Management Agency is considering, it could skyrocket even more in coming years.
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Previously reported – October 2018
With the NFIP underwater, expand private sector’s role
With each passing year of devastating storms and as Hurricane Michael leaves a path of destruction, the financial woes of the National Flood Insurance Program (NFIP) deepen. But despite promising alternatives, until recently, U.S. policymakers have failed to act. However, Rep. Ed Royce’s (R-Calif.) recently introduced bill – The “Government Risk and Taxpayer Exposure Reduction Act of 2018” (GRATER Act or HR 5381) – provides a fresh approach that seeks to transfer federal risk to private capital and reinsurance markets. This legislation represents an important step in improving U.S. flood policy that will benefit both consumers and taxpayers.
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Previously reported – November 2018
Key Insurance Pool Needs More Than A Life Preserver
Congress should permanently fix the broken National Flood Insurance Program
Fifty years ago, Congress created the National Flood Insurance Program in the aftermath of Hurricane Betsy, a monster storm that killed 76 people and flooded more than 164,000 homes in New Orleans. Since then, the program has provided flood insurance to homeowners and businesses where a private market did not exist.
The program is broken, however. It’s in debt, and there doesn’t seem to be any help on the way. Congress needs to make a long-term fix. Doing so will not only protect covered properties in flood-prone areas but will help stabilize a market for mortgage originators and others in the real estate industry.
Reforms needed for National Flood Insurance Program
* Make repetitive loss properties a priority.
* Require mitigation on every flooded property.
* Open up flood insurance to private insurers.
* FEMA should update flood maps quickly.
* Gradually right-size rates in flood-prone areas.
* Run the National Flood Insurance Program as a business.
The goal of the National Flood Insurance Program (NFIP) is to reduce rising emergency disaster-relief payouts, map the flood risk of the entire country and cut down the risk of floods by working with communities on proactive flood-plain management.
Until 2005, the NFIP was largely self-sustaining, but Hurricane Katrina and a series of other hurricanes and storms have left the program nearly $20.5 billion in debt, and that’s before Hurricane Florence hit the Carolinas.
Last fall, Congress forgave $16 billion in NFIP debt. NFIP’s fiscal lifeline has been extended by its overseers more than 75 times during its existence, including 41 times in the past 20 years. It’s due up for another congressional reauthorization later this year, on Nov. 30.
The program needs a long-term reauthorization to protect the vulnerable, improve the program’s financial soundness and promote private-market competition in the flood insurance market. Following are some common-sense reforms that Congress should consider.
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Fixing the National Flood Insurance Program
More than 5 million homeowners and businesses rely on the federally-run National Flood Insurance Program (NFIP) for protection from flooding, but with each passing year, the program’s design flaws and mismanagement are nudging it closer to insolvency.
Despite repeated bailouts by Congress, the NFIP continues to lose an estimated $1.4 billion each year. The program’s debt to the U.S. Treasury now exceeds $20 billion, which no one expects it to ever pay back.
But the NFIP’s problems are largely self-inflicted.
The program’s fundamental flaw is that the premiums homeowners pay rarely reflect covered risk. Underpricing policies encourages over-development in areas vulnerable to flooding, while over-pricing deters property owners from purchasing coverage at all. In fact, recent estimates suggest that between 60 and 99 percent of Americans affected by recent disasters did not have flood insurance.
The NFIP recently announced that it plans to upgrade its rating methodology to more closely align premiums with risk, but it remains to be seen whether these measures will go far enough to stabilize its finances.
One major handicap to properly assessing the risk of flood damage is that many of the flood maps the NFIP uses to set premiums and allocate resources are decades out of date. Some communities rely on maps created in the 1970s, leaving policymakers and residents without the information needed to make informed decisions about their flooding risk.
But it’s not just the age of the NFIP’s maps; even newer maps are poor predictors of flood risk because they don’t take into account relevant factors like rapid rain accumulation, building codes, or expected population growth.
A recent Inspector General report found that only 42 percent of the NFIP’s maps “adequately identified the level of flood risk.” The report concluded, “Without accurate floodplain identification and mapping processes, management, and oversight, FEMA cannot provide members of the public with a reliable rendering of their true flood vulnerability or ensure that NFIP rates reflect the real risk of flooding.”
On top of inadequate mapping, the NFIP does not do enough to reduce flood losses and help communities become more resilient to flooding. Preparing for disasters is crucial – studies have shown that for every $1 invested in mitigation, society saves $6 in rebuilding costs.
Buildings that are damaged and rebuilt over and over again without adequate mitigation measures are a significant drain on the NFIP’s finances. A $70,000 home in Mississippi, for instance, filed 34 claims with the NFIP from 1978 to 2010 worth $663,000 – more than 9 times the value of the house. A $153,000 house in Alabama has received $2.3 million in claims (15 times its value). Years back, an investigation by USA Today found that owners of 19,600 homes and commercial buildings have collected insurance payments from the NFIP that exceed the value of their property.
Overall, properties like these, which represent about 1-2 percent of the NFIP’s total policies, have been responsible for 30 percent of claims since the program’s inception. The NFIP should end this wasteful practice.
Aligning premiums with risk, improving mapping procedures, and creating stronger incentives to make homes and businesses stronger and more resilient to floods would go a long way toward setting the NFIP of firm financial footing.
In addition, Congress should consider expanding the private sector’s role in flood protection, which the NFIP itself has acknowledged could be a fruitful path. Private market participation would give consumers a broader selection of coverage options, often at cheaper rates than what the NFIP offers, while reducing taxpayers’ exposure to flood losses. To this end, Representative Royce’s GRATER Act is a positive step in getting the private sector to assume these market risks.
Consumers and taxpayers deserve better. Congress shouldn’t wait to enact meaningful reform to a program millions of families count on when disaster strikes.
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Previously reported – February 2019
Private Flood Insurance Gets Boost from Regulators
Flood insurance policies not backed by the government currently represent less than 5% of the residential market
The number of flood insurance policies underwritten by private companies could triple under a new federal rule that would require mortgage lenders to accept both private and government-backed policies.
The rule, approved by the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency late last week, is aimed at boosting the availability of private flood insurance in flood zones, a market dominated by a multibillion-dollar government program. It could usher in private flood insurance for hundreds of thousands of residential properties in those areas, according to government estimates. “This ruling has the potential to open up the private insurance market,” said Michael Barry, a spokesman at the industry-funded Insurance Information Institute. He said the effect was likely to be concentrated in Florida, Louisiana and Texas, where most of the nation’s flood insurance policies are held.
The private-sector insurance industry historically has been reluctant to write flood insurance because of the potential for large losses, but interest has grown in recent years with the improvement of mapping and modeling technologies. Private flood insurance policies currently represent less than 5% of the residential market, according to government and academic research. Most private flood insurance is for commercial and more expensive residential properties that need coverage above the federal program’s $250,000 limit.
The public program had more than five million policies outstanding and $1.3 trillion in potential claims as of July 2018. It is operated by the Federal Emergency Management Agency. “If the private market can take care of it, that’s just more sustainable for taxpayers and for society in general,” said R.J. Lehmann, a senior fellow at the R Street Institute, a libertarian policy organization that has argued for shrinking the government flood insurance program.
The regulation is set to go into effect in July, as the next hurricane season gets under way. It stems from a provision in a 2012 flood insurance law that sought to partially address financial pressures on the government’s flood insurance program, which is deeply in debt from record disaster payouts in recent years and limitations on its ability to increase premiums.
Congress has for years debated how to fix the National Flood Insurance Program, created about 50 years ago because private insurers were unwilling to risk catastrophic flood losses. Lawmakers, divided based on the prevalence of floods in their districts, have approved only partial solutions such as premium increases or debt forgiveness for the government program. The government, for instance, wrote off $16 billion in debt for the federal program in 2017 following claims made in the aftermath of hurricanes Harvey, Irma and Maria.
Congress must reauthorize the federal insurance program this year. It is expected to discuss additional ways to overhaul the federal program, such as redrawing the maps that dictate where coverage is required and making it financially stable.
Opponents of opening up the flood insurance market argue private insurers could cherry-pick safer properties that could be cheaper to insure, saddling the public program with riskier ones. And some lawmakers, including Sen. Robert Menendez (D., N.J.), have called for increasing controls over the private flood insurance sector.
The rule would require lenders to accept private flood insurance policies that have coverage at least as comprehensive as what is offered by the federal program. Banks also could allow policies that aren’t as comprehensive as government flood insurance, a move backed by the insurance industry but opposed by some consumer advocates because it could concentrate riskier insurance policies in the federal plan.
Narrower coverage will “appeal more to lower risk people and then leave the National Flood Insurance Program principally with higher risk people,” said Daniel Schwarz, a professor at University of Minnesota Law School. Three other regulators, including the Federal Reserve, must still approve the rule.
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Previously reported – March 2019
National Flood Insurance Program needs long-term reauthorization to address key challenges
As the House Financial Services Committee meets this week to discuss reauthorizing the National Flood Insurance Program (NFIP), there is a lot at stake. The NFIP, on which 5 million Americans depend for protection from flooding, began with the best of intentions — reducing the burden on federal taxpayers stemming from flood relief while providing resources to help devastated communities rebuild. But as the Nobel Prize-winning economist Milton Friedman was fond of saying, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” Judged by its results, the NFIP is badly in need of serious changes to address its massive debt, persistent operating deficits, and many structural flaws — all of which expose taxpayers to financial risk. With the NFIP’s authorization set to expire in May, Congress has an opportunity to enact real reforms that will put the NFIP on a sustainable, fiscally-responsible footing. Lawmakers should begin to chart a future for the NFIP that addresses its key challenges.
One of the NFIP’s biggest flaws is that it masks the true flood risk of properties by offering a significant portion of its policyholders heavily subsidized rates. One in five homeowners with NFIP protection pay less than half the full cost of their policy. No one begrudges low-income homeowners who need financial assistance to purchase coverage, but most of the NFIP’s subsidies actually go to homes with the highest values. A study by the Congressional Budget Office found that the median value of homes with NFIP coverage is about double that of all American homes. Not only that, but wealthier households tend to get much larger subsidies than middle-income homeowners. Ending these handouts to the wealthy and refocusing resources on the truly needy is essential. Limiting NFIP subsidies would have another positive effect. Currently, by shielding policyholders from the full cost of building in a flood zone, the government encourages more houses to be constructed in disaster-prone areas than if homeowners bore the costs of flooding themselves. Transferring more of the flood risk from federal taxpayers to individual homeowners would cause them to think twice about where to build their home.
But setting risk-based premiums is impossible without accurate flood maps. Many of the 22,000 communities that participate in the NFIP currently rely on outdated and inaccurate flood maps. A recent audit found that only 42 percent of the NFIP’s maps “adequately identified the level of flood risk.” Without better mapping that incorporates improvements in engineering methods and technology, full-risk insurance rates cannot be accurately determined, and homeowners and local policymakers may be misled about the true flood vulnerability of their communities.
Another issue that merits more attention is mitigation. The best way to reduce insurance premiums for homeowners is to lessen the risk of flood loss. Making communities more resilient to flooding before disasters strike by adopting better zoning and building codes and other measures can significantly reduce the cost of cleaning up after floods. Studies have shown that for every $1 invested in mitigation, society saves $6 in rebuilding costs. Overall, so-called “repetitive loss properties,” structures that are damaged and repaired over and over again, account for about 1-2 percent of the NFIP’s total policies but have been responsible for 30 percent of claims since the program began in 1968. One Mississippi home worth $70,000 filed 34 claims with the NFIP from 1978 to 2010 totaling $663,000 — more than 9 times the value of the house. Through more aggressive mitigation incentives, policymakers could reduce this massive drain on the NFIP’s finances.
Congress should also resolve ambiguities in federal law that have limited the growth of private flood insurance; currently, private insurance only makes up 4 percent of the residential market. Greater private-sector involvement in flood insurance would benefit both consumers — many of whom could find lower rates and more flexible options through private carriers — and taxpayers by reducing the NFIP’s financial exposure.
Rather than continue postponing meaningful reforms to the NFIP with short-term stop-gaps, Congress should work over the next several months to craft a long-term solution to the NFIP’s challenges. Without reform, the NFIP’s precarious financial position will only grow worse, to the detriment of taxpayers and homeowners alike.
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House Financial Services Committee Issues Hearing Memo on National Flood Insurance Program
Subject: March 13, 2019, Full Committee Hearing Entitled: “Preparing for the Storm: Reauthorization of the National Flood Insurance Program”
Prior to 1950, flood insurance was a peril often included in standard homeowners’ insurance policies. However, in response to an increasing frequency and severity in flood- related losses in the 1950s, insurance companies began excluding flood insurance coverage and selling it separately. By the 1960s, widespread flooding along the Mississippi River caused most private insurers to flee the business of flood insurance altogether, leaving many consumers with virtually no access to private flood insurance.1 The lack of availability of flood insurance for consumers left them vulnerable in the event of a flood, and also left taxpayers vulnerable to bearing the costs of flood damage through post-disaster relief in the case of a flood event.
In direct response to this private market failure, the National Flood Insurance Program (NFIP) was created in 1968 with the passage of the National Flood Insurance Act (NFIA). In doing so, Congress determined that “as a matter of national policy, a reasonable method of sharing the risk of flood losses is through a program of flood insurance which can complement and encourage preventive and protective measures” and that transferring the costs of private property flood losses from the general taxpayer to individuals in the floodplains through premiums would ease the strain on the nation’s limited disaster resources. Congress also passed the Flood Disaster Protection Act of 1973 (FDPA) that requires most property owners in a designated Special Flood Hazard Area to purchase flood insurance.
The last long-term reauthorization of the NFIP occurred when Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12), which was subsequently amended by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). Since the end of fiscal year (FY) 2017, the NFIP has been reauthorized ten times and has experienced brief lapses. According to the National Association of Realtors, an estimated 40,000 home sales are lost or interrupted every month that the NFIP’s authority lapses. The NFIP’s authorization is currently set to expire on May 31, 2019. In the event of a lapse, NFIP will be unable to enter into new flood insurance contracts, which will lead to widespread market instability due to the stalling of mortgage processing for homes that are statutorily required to have flood insurance.
Several Members of Congress have put forward legislative proposals to reauthorize the NFIP and make programmatic reforms to promote affordability, protect policyholders, and improve flood mapping and floodplain management.
Overview of the NFIP
The NFIP is administered by the Federal Emergency Management Agency (FEMA) through its Federal Insurance & Mitigation Administration (FIMA). The NFIP was designed to serve two interrelated goals: (1) provide access to primary flood insurance and (2) reduce flood risk through the adoption of floodplain management standards. The NFIP advances these goals by offering primary flood insurance exclusively for properties in communities that adopt minimum floodplain management standards under FEMA regulations. The NFIP also administers the Community Rating System (CRS), which is a voluntary incentive program that recognizes communities for implementing floodplain management practices that exceed the NFIP’s minimum requirements and, in exchange, FIMA offers reduced flood insurance premiums to policyholders.
Today, the NFIP is the principal provider of primary flood insurance in the U.S., covering over 5 million households and businesses across the country for a total of over $1.3 trillion in flood insurance coverage. As of the end of FY 2018, approximately 22,324 communities participate in the NFIP, covering an estimated 93 percent of the U.S. population. According to FEMA, the NFIP saves the nation an estimated $1.87 billion annually in flood losses avoided because of the NFIP’s building and floodplain management regulations.
In 1983, FEMA created the Write Your Own (WYO) Program in an effort to: increase the NFIP’s policy base and geographic distribution of policies; improve service to NFIP policyholders through infusion of insurance industry knowledge and capacity; and, provide the insurance industry with direct operating experience with flood insurance. This WYO Program operates as a partnership between FEMA and participating property and casualty insurance companies that are compensated to write and service NFIP policies. The WYOs assume none of the risk by participating in this program. FEMA retains all of the insurance risk and underwrites any losses. Currently, approximately 60 different companies administer about 87 percent of NFIP policies through the WYO Program. The remainder of NFIP’s policies are provided through the Direct Program, which is operated by a government contractor and performs the same basic functions as a WYO company.
The NFIP offers a Standard Flood Insurance Policy (SFIP) for properties in participating communities within a Special Flood Hazard Area (SFHA). By virtue of the mandatory purchase required by law, most property owners within the SFHA are required to purchase flood insurance. Many of the SFIP’s policy terms are set in statute. The maximum coverage amount for building coverage is $250,000 for single-family homes, and $500,000 for multi-family residential properties, and non-residential properties including commercial properties. The maximum coverage amount for contents only is $100,000.9 If the SFIP’s maximum coverage amounts are insufficient to cover the full value of the property, policyholders may have the option of obtaining excess flood insurance in the private market.
The NFIP also offers coverage for properties that are not within a SFHA, usually as a Preferred Risk Policy (PRP). PRPs include similar coverage but at discounted rates in accordance with their lower risk profile. If a property has a significant loss history, that policyholder may become ineligible for a PRP and would need to purchase a SFIP that is commensurate with the flood risk.
The NFIP’s Financial Status
The NFIP is largely self-funded through insurance premiums collected from policy holders. Policyholders are also assessed a number of surcharges and other fees. In FY 2018, policyholders paid $382 million in surcharges, $188.162 million in federal policy fees, and $496.82 million in reserve fund assessments. A portion of these premiums, fees, surcharges, and assessments goes towards the cost of flood mapping and floodplain management. A large portion also goes to paying interest on debt of the NFIP.
Congress designed the NFIP as a program that would operate on a cash flow basis, borrowing from the Treasury in bad years and returning funds to the Treasury in good years. The NFIP was largely self-supporting in this way from 1986 until 2005, but due to extraordinary losses incurred as a result of hurricanes Katrina, Rita, and Wilma in 2005, and then Superstorm Sandy in 2012 and Hurricane Matthew in 2016, the program currently carries a debt of $20.5 billion.11 It is also important to note that a significant portion of the NFIP’s debt accrued as a result of Hurricane Katrina ($19 billion) could not possibly have been properly accounted for in NFIP’s risk modeling; specifically, the U.S. Army Corp of Engineers took responsibility for engineering and design failures in the levees that should have been able to provide far better protection for New Orleans in the face of Katrina.
Taxpayers are not on the hook for this debt and receive millions of dollars in interest payments every year (currently approximately $400 million annually or a total of $4.2 billion since 2005) at the expense of policyholders. In 2017, following a proposal submitted by OMB Director Mick Mulvaney, Congress passed legislation to partially forgive $16 billion of the NFIP’s debt of $30.4 billion, after the NFIP’s debt ballooned following Hurricanes Harvey, Irma and Maria and other historic flooding that year.
In 2018, FEMA submitted its congressionally mandated Affordability Framework demonstrating, among other things, that low-income homeowners and renters face significant affordability challenges. The report documents that those that are least able to afford higher premiums tend to live in the highest flood hazard areas writing, “generally, incomes are higher outside the SFHA than they are inside the SFHA. The median household income for residential policyholders is $82,000, although it is substantially lower in the SFHA than outside the SFHA.” Further, FEMA found that “the combination of higher premiums and lower incomes in the SFHA creates affordability pressure on households.”
* Waters_009 is a discussion draft that would reauthorize the NFIP through September 30, 2024 and address a number of affordability issues such as: 1) forgiving the NFIP’s debt; 2) creating a 5-year demonstration for means-tested assistance to low-income policyholders; 3) reducing fees and surcharges; 4) revising the NFIP’s coverage limits; 5) enabling policyholders to pay premiums in monthly installments; and 6) creating a state revolving loan fund modeled after legislation previously introduced by Rep. Crist.
* Maj_Mitigation is a discussion draft that would make several improvements to floodplain management and mitigation such as: 1) raising the amount of funds available under Increased Cost of Compliance program and expanding the eligible mitigation activities to include the cost of acquisitions, among others; 2) granting the Administrator discretion to consider the extent to which communities are working to remedy problems with repeatedly flooded areas when administering mitigation assistance; 3) granting credits for alternative forms of mitigation, allowing coverage for coops and community-based policies; and 5) authorizing and flood plain management activities.
* Maj_Mapping is a discussion draft that would reauthorize the flood mapping program and provide funding to support flood mapping. It would also make several improvements to the mapping program such as: 1) requiring the most up-to-date technology, and more advanced and granular flood maps; 2) improving the process for policyholders and communities to appeal FEMA’s mapping decisions; and 3) creating new flood map zones for levee-impacted and for agricultural areas.
* Velazq_035 is a bill that would make numerous improvements to the claims process drawing on the lessons learned from Superstorm Sandy. The bill would ensure that policyholders better understand the terms of their flood insurance policies and improve the appeals and litigation process for consumers
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Climate Advocates Cheer Trump Policy Shift on Flood Insurance
- Premiums to be based on full flood risk starting in late 2020
- Change expected to raise costs for the most deluge-prone homes
Climate advocates say an overhaul of the nation’s flood insurance program being unveiled by the Trump administration will spur communities around the country to better plan for extreme weather, but could drive up costs for some homeowners.
The changes being announced Monday by the Federal Emergency Management Agency represent one of the most significant reforms in the history of the National Flood Insurance Program. It will tie premiums to the actual flood risk facing individual homes nationwide starting in October 2020. The current system sets prices based largely on whether a home is inside or outside of the 100-year flood plain.
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Trump Administration Plans Flood Insurance Overhaul
Expensive properties could see rate increases under new FEMA plan
The Trump administration said Monday it plans to overhaul government-subsidized flood insurance, in a sweeping proposal that could raise rates on more expensive properties and those in higher-risk areas. The new system would affect policies for most homeowners who own property in flood-prone areas, where such coverage is required because few private companies offer flood insurance. The Federal Emergency Management Agency, which runs the National Flood Insurance Program, said the plan would start assessing properties individually according to several variables—including hurricane rainfall, coastal surges and the distance to a body of water—rather than applying one formula across an entire flood zone when assessing flood risk and contract cost. The government also would factor in the replacement cost of the home, which could push up premiums for homeowners with higher-valued properties and decrease those with lower-cost homes. FEMA plans to announce the new rates on April 1, 2020 and implement them starting Oct. 1 that year. They could affect more than 5 million single-family policyholders of public flood insurance. The NFIP covers both coastal flood zones and inland river flood plains, though the policy change may have a greater impact in coastal states including Florida, Louisiana and Texas, where most of the policies are held.
The changes are likely to stoke a longstanding debate over flood insurance, with policy makers divided over how much the public should subsidize the program. While those in coastal areas have advocated for more federal funding, both environmentalists and fiscal conservatives have argued the program encourages building in risky flood-prone zones. FEMA has increasingly struggled to pay off claims after a series of natural disasters in recent years. The government wrote off $16 billion in debt for the federal program in 2017 following claims made in the aftermath of hurricanes Harvey, Irma and Maria. Scientists say the frequency of such events is influenced by climate change. FEMA’s current system calculates rates based on whether a home falls in a designated flood zone. Since higher-valued properties are more likely to hit the $250,000 insurance cap because they face costlier damages, “there’s an inequity,” said David Maurstad, FEMA’s deputy associate administrator for insurance and mitigation. “Lower-value homes are paying proportionately more than higher-value homes.” “What we’re going to do is change an insurance-rating structure that hasn’t fundamentally been changed since the 1970s,” Mr. Maurstad added. “We’re going to consider more flood risk than we currently do now.” The changes would also leverage new loss-estimation technology, said Mr. Maurstad. In recent years, private insurers have developed increasingly sophisticated models that account for variables including climate change. The agency hopes that a more risk-sensitive pricing could attract more homeowners to purchase flood insurance, even if they aren’t required to. “People even outside the high-risk area will have a better understanding of what the specific risk is,” said Mr. Maurstad. “They will take the responsible action and insure for flood just like they insure for windstorms, hail and fire.”
FEMA faces Congressional restrictions on how much it can increase rates, so the agency could phase in the rate changes, said Mr. Maurstad. It plans to make more details of the plan public in the coming weeks, he added. For years, Congress has debated how to modernize the financially beleaguered flood-insurance program, created about 50 years ago because private insurers were unwilling to risk catastrophic flood losses. Lawmakers are set to reauthorize the federal insurance program this year, after granting a short-term extension in December.
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Previously reported – May 2019
Vote set on flood insurance extension
Nick Sobczyk, E&E News, May 13, 2019
The House will vote this week to extend the National Flood Insurance Program until the end of the fiscal year, another sign lawmakers have again punted on reform talks. The NFIP expires at the end of the month, and despite months of extra time to reach a deal on a reform package, the measure up for a vote under fast-track procedure this week would be the 11th short-term reauthorization in two years. The measure would extend the program until Sept. 30. There are talks underway on both sides of Capitol Hill, but few signs lawmakers are close to striking a long-term reauthorization deal for a program that advocates say is badly in need of reform. Sen. Bill Cassidy (R-La.) said last week he’s working with Sens. Kirsten Gillibrand (D-N.Y.), Bob Menendez (D-N.J.) and John Kennedy (R-La.) on a reform bill. And House Financial Services Chairwoman Maxine Waters (D-Calif.) has drafted reform proposals and held a hearing on the NFIP to jump-start efforts on the other side of Capitol Hill. Meanwhile, four bipartisan former Federal Emergency Management Agency administrators penned a letter to congressional leaders last week imploring lawmakers to make long-term changes to the program. The group includes Obama-era FEMA chief Craig Fugate and Brock Long, who resigned the post earlier this year. Among other things, they suggest a requirement that sellers disclose flood risk to potential homebuyers and a low-interest loan program to help buy out owners of properties that are repeatedly flooded. Especially in a time when losses from natural disasters and flood events are ballooning, it doesn’t make sense for the federal government to keep paying to rebuild in flood zones, they wrote. “By incentivizing Americans to live in vulnerable areas without taking steps to mitigate the risk, the NFIP gives property owners a false sense of security,” they wrote. “In the absence of reforms, costs in taxpayer dollars and lives lost will only get worse.”
Previously reported – June 2019
House Panel Approves Bill Overhauling Federal Flood Insurance
Bipartisan bill aims to spur private flood insurance and lower costs for lower-income homeowners
Lawmakers in the House advanced a bipartisan plan to overhaul the federal flood-insurance program, which has struggled to keep pace with record disaster payouts in recent years.
The bill, approved unanimously Wednesday by the House Financial Services Committee, aims to change the financial stakes that people in flood-prone areas face when shopping for insurance. The Midwest has been hit particularly hard by flooding this spring, as several states in the Farm Belt suffer from the wettest year on record. The legislation seeks to spur private flood insurance and reduce costs for lower-income policyholders. It also would require the government to make sure more properties that need coverage are identified on updated flood-zone maps. The plan backed by Democrats and Republicans on the committee would extend the National Flood Insurance Program for another five years. It now goes to the full House and must also pass the Senate. The program has operated since 2017 under a series of temporary extensions passed by Congress, the latest of which ends in September. “This has put our communities and housing market at risk,” House Financial Services Committee Chairwoman Maxine Waters (D., Calif.) said. “We’ve worked very hard to give consideration to the concerns on both sides of the aisle.”
Rep. Patrick McHenry (R., N.C.) said the bill will “not only provide long-term certainty to [federal flood insurance] but will modernize the program to ensure it has the tools it needs to perform its functions.” Federal flood insurance, offered through the Federal Emergency Management Agency, was created more than 50 years ago because private insurers were unwilling to risk catastrophic flood losses. Recent extreme weather events such as Hurricanes Harvey, Irma and Maria in 2017 put so much financial pressure on the program that Congress took the unprecedented step of canceling its debt, writing off $16 billion that year. The flood program had $20.5 billion in debt as of September 2018. The bill doesn’t forgive any additional debt, a move Ms. Waters had championed. But it could be the first step by Congress to overhaul flood insurance and provide a longer-term extension for the program—two measures that have eluded lawmakers since 2012. The deal would create a pilot program that provides discounts for premium rates paid by low-income households, ensuring they don’t exceed 2% of the local median income. The bill also would end surcharges enacted by Congress in 2014, including premium increases of $250 for vacation homes.
It would appropriate $500 million in annual funding for flood-zone mapping and expand mapping to all areas of the U.S. FEMA would be required to use new mapping technologies, such as a pulsed laser-based method called Lidar, or light detection and ranging. In a move that could give private flood insurers a boost, the plan would allow property owners to switch between public and private flood insurance without losing subsidies available to them under the federal plan. For instance, property owners would be able to reinstate lower rates that were locked in when the government said they were subject to higher flood risk. They could also get reimbursed for overlapping public coverage held while they switch over to a private plan. The bill is the latest move by policy makers to jump start a private market for flood insurance. Banking regulators earlier this year said lenders as of July must accept private flood-insurance policies, in addition to the government-backed program. The bill’s prospects are uncertain in the Senate, where Republicans and Democrats have panned it. Republican senators from Louisiana—Bill Cassidy and John Kennedy—said it doesn’t go far enough to cut costs for policyholders. Mr. Cassidy in a statement said it “lacks reforms needed to ensure the program is sustainable and that families won’t be hit with drastic premium increases.” . Read more » click here
FEMA looks at flood insurance program changes
With the 2019 Atlantic hurricane season officially underway as of June 1, coastal residents should be aware of updates to the National Flood Insurance Program that will change how the Federal Emergency Management Agency calculates flood risk and insurance policy pricing. FEMA announced in March it is redesigning its flood risk rating system to deliver insurance rates that more accurately reflect a property’s unique risk of flooding. The effort has been dubbed “Risk Rating 2.0,” and the new rates will be announced next April and go into effect Oct. 1, 2020. The change could lead to higher insurance rates for some policyholders and lower rates for others, depending on an individual property’s updated flood risk calculation. Under the new system, properties at the highest risk of flooding will generally see higher insurance rates and lower-risk properties may see a lower rate, but FEMA says it is too early in the process to know for certain which policyholders will see an increase and which will see a decrease. Under Risk Rating 2.0, FEMA will take data from a variety of sources to develop a comprehensive understanding of flood risk, according to the agency. Data sources include existing FEMA flood maps, National Flood Insurance Program policies and claims, U.S. Geographical Survey data, National Oceanic and Atmospheric Administration Sea, Lake and Overhead Surges from Hurricanes model data, the U.S. Army Corps of Engineers data sets and information from third-party flood models. In addition to raw data, FEMA will take into account factors such as type of flood, distance away from the coast or other flooding source and cost to rebuild when determining new rates. By reflecting costs to rebuild, for example, owners of lower-valued properties will not pay as much for flood insurance as their higher-valued counterparts even if both properties have the same risk of flooding. With Risk Rating 2.0, FEMA also plans to offer mitigation credits to help incentivize risk reduction efforts and reduce the cost of future flooding events. The program will initially offer credits for three mitigation efforts: installing flood openings; elevating onto posts, piles and piers; or elevating equipment and machinery above the lowest floor.
FEMA says the risk calculation methodology currently in place was developed in the 1970s and has barely been updated over the years, even as technology has evolved to be more precise. Currently, insurance rates are based predominately on the Flood Insurance Rate Map and base flood elevations. The National Flood Insurance Program is federally-backed and administered by FEMA to provide flood insurance to homeowners, renters and business owners as most standard insurance policies do not cover losses from flood. According to FEMA, floods are the most common and most destructive type of natural disaster in the United States, but the majority of home and business owners do not possess flood insurance. In conjunction with the NFIP, FEMA maintains a database of community flood hazard maps that help inform floodplain management policies. The flood maps, which are updated periodically, will still be used to assess risk calculation, but they will no longer be the primary source of risk rating. Even as major changes are coming to the NFIP, there are some questions about the long-term viability of the program, which is about $20 billion in debt. On Thursday, President Donald Trump signed into law a $19.1 billion disaster aid package that includes a temporary extension of NFIP until the end of September as lawmakers deliberate how to reform the program. In addition, FEMA recently announced it will soon publicly release about 50 million NFIP records as part of an initiative known as OpenFEMA to improve transparency within the agency and the flood insurance program. The agency said those records will be available for viewing on the website fema.gov/openfema by mid-June. “We believe this will provide transparency, reduce complexity for public data requests, improve how our stakeholders interact with and understand our program, all without consumer privacy,” FEMA chief executive David Maurstad said in a statement about the data. According to FEMA, flood insurance policyholders in North Carolina received average payments of $40,000 after Hurricane Florence for flood claims. The average annual cost of an NFIP policy for homeowners is about $700. A single-family home can be insured up to a maximum of $250,000, not including contents coverage, which can be purchased separately and covers up to $100,000. Renters can cover contents up to $100,000, and non-residential property owners can insure their structure up to $500,000 and contents up to $500,000. FEMA encourages home and business owners to purchase flood insurance before the hurricane season begins, or as soon as possible, because it takes 30 days for a policy to take effect.
Now that the Atlantic hurricane season is underway, FEMA offers other tips to stay safe this year, including the following:
• Create an emergency communication plan with your family. This plan spells out how everyone will contact each other, where to go and how to get back together.
• Build an emergency kit. Keep it ready at home, at work and in the car.
• Know your community’s evacuation plan, evacuation routes and how to receive alerts.
• Stay informed about current conditions. Listen to local officials and evacuation orders.
• Download an emergency weather app on your phone.
• Have backup power for your phone. Purchase a weather radio.
• Keep all important documents in a waterproof container to take with you if you evacuate.
Ready.gov/hurricane and ReadyNC.org provide helpful information on how to plan.
For more information on the NFIP, visit FloodSmart.gov or call 800-427-4661.
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Previously reported – November 2019
FEMA postpones flood insurance rate revamp amid backlash
FEMA is delaying a sweeping overhaul of flood insurance rates by one year, after the planned changes sparked concerns in Congress about premium hikes. The agency said its Risk Rating 2.0 initiative will be implemented on Oct. 1, 2021, rather than Oct. 1, 2020 — a move that takes off the table a potential spike in rates for homeowners in the run-up to next November’s elections. Under the initiative, which FEMA announced in March, the Trump administration is seeking to modernize the system by which the National Flood Insurance Program assesses risks and sets insurance rates for millions of homeowners across the country. The revamp is intended to provide a more accurate picture of perils facing individual properties, meaning it would likely lead to higher flood insurance rates for some homeowners and lower rates for others. The potential for rising flood insurance costs has spurred coastal lawmakers over the last several months to push back on FEMA’s efforts. For them, the delay was a welcome development. “This should have been announced long ago,” Rep. Garret Graves (R-La.) said in an interview. “FEMA has been as clear as mud about what Risk Rating 2.0 actually is.” The delay underscored the struggle in modernizing the program, which is in debt to the Treasury after years of devastating hurricanes. Its approach to assessing risk has largely gone unchanged since the 1970s. “It’s complicated,” said Laura Lightbody, who directs the flood-prepared communities initiative at the Pew Charitable Trusts. “But the purpose of doing it is to make sure that rates better reflect today’s risk. Changing the date I don’t think should be the focus.”
FEMA said it was postponing the changeover because more time was needed for a comprehensive analysis of the proposed rating structure. FEMA’s goal as it conducts further review is “to protect policyholders and minimize any unintentional negative effects of the transition.” The extension, FEMA said, would also allow for all NFIP policies to change over to the new rating system at one time, rather than a phased approach as originally proposed. “Over the course of the next year, FEMA will continue to actively engage with Congress and other key stakeholders to ensure transparency and visibility as we work to transform the NFIP,” the agency said. The problem for many coastal lawmakers ahead of Thursday’s announcement was that FEMA had not conveyed what the potential impacts of Risk Rating 2.0 would be. That concern prompted 64 House members to demand last week that new caps on premium increases be included in a long-term flood insurance program reauthorization bill that is awaiting a vote on the House floor, as well as a delay of Risk Rating 2.0. “Republicans, Democrats, House, Senate, all of us have been pushing FEMA to provide some transparency, to open up the black box, to help us understand what they’re doing and how our reauthorization should take that into consideration,” Graves said. “It has been impossible to do so.” In the House and Senate, members on Thursday signaled they were undeterred in pushing for new affordability protections in upcoming flood insurance reauthorization bills. Rep. Frank Pallone (D-N.J.), chairman of the House Energy and Commerce Committee, said in a statement Thursday that a “strong premium cap” was needed in the flood insurance legislation to protect homeowners. Sen. Bob Menendez (D-N.J.), who has been leading the charge in the Senate, also viewed the delay as only a temporary fix. He planned to push for a “single-digit cap” on annual rate increases and a strong affordability program, a Menendez aide said. “A one-year delay does not alleviate the concern and likely pain for policyholders during a five-year reauthorization without meaningful caps and affordability built into the NFIP program,” he said.
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Previously reported – July 2020
Millions of American Homes at Greater Flood Risk Than Government Estimates, New Study Says
Nearly six million properties across the U.S. have a substantial risk of flooding that isn’t disclosed by federal flood maps, according to a nonprofit research firm
Nearly six million properties across the U.S. have a substantial risk of flooding that isn’t disclosed by federal flood maps, according to a nonprofit research firm that released its own U.S. flood maps Monday. The maps from nonprofit First Street Foundation highlight the widespread nature of flood risk. Flooding caused about $17 billion in property damage a year from 2010 to 2018, according to the Association of State Floodplain Managers. Homeowners, developers and city planners have long used the Federal Emergency Management Agency’s flood maps, which outline flood zones. FEMA’s maps label which properties have at least a 1% annual risk of flooding, also called a 100-year flood zone. The First Street analysis suggests that millions of American homeowners could be more vulnerable to flooding than they realize, and many may lack the resources to rebuild their homes in the event of severe flood damage. Mortgage lenders typically require buyers of homes in a 100-year flood zone to purchase flood insurance.
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New Data Reveals Hidden Flood Risk Across America
Nearly twice as many properties may be susceptible to flood damage than previously thought, according to a new effort to map the danger.
Across much of the United States, the flood risk is far greater than government estimates show, new calculations suggest, exposing millions of people to a hidden threat — and one that will only grow as climate change worsens. That new calculation, which takes into account sea-level rise, rainfall and flooding along smaller creeks not mapped federally, estimates that 14.6 million properties are at risk from what experts call a 100-year flood, far more than the 8.7 million properties shown on federal government flood maps. A 100-year flood is one with a 1 percent chance of striking in any given year. The federal government’s flood maps guide where and how to build, whether homeowners should buy flood insurance, and how much risk mortgage lenders take on. If the new estimates are broadly accurate, it would mean that homeowners, builders, banks, insurers, and government officials nationwide have been making decisions with information that understates their true physical and financial risks.
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The National Oceanic and Atmospheric Administration reported on Tuesday that the U.S. has seen a major increase in high-tide flooding along the Atlantic and Gulf Coasts, damaging homes, inundating roads and imperiling the safety of drinking water. The trend is likely to accelerate. By 2030, the agency projected, the frequency of high-tide flooding could double or triple, and by 2050 that number could be five to 15 times as great.
New Data Shows an ‘Extraordinary’ Rise in U.S. Coastal Flooding
Rising seas are bringing water into communities at record rates, the National Oceanic and Atmospheric Administration said Tuesday.
Parts of the United States saw record levels of high-tide flooding last year as rising seas brought water further into coastal homes and infrastructure, government scientists reported Tuesday. The increase in high-tide flooding along the Atlantic and Gulf Coasts since 2000 has been “extraordinary,” the National Oceanic and Atmospheric Administration reported, with the frequency of flooding in some cities growing fivefold during that time. That shift is damaging homes, imperiling the safety of drinking water, inundating roads, and otherwise hurting coastal communities, the agency said. “Conditions are changing, and not just in a few locations,” Nicole LeBoeuf, acting assistant administrator for NOAA’s National Ocean Service, which compiled the report, said during a call with reporters. “Damaging floods that decades ago happened only during a storm now happen more regularly, even without severe weather.” NOAA defines high-tide flooding, also called sunny-day or nuisance flooding, as water rising more than half a meter, or about 20 inches, above the normal daily high-tide mark. The frequency of that flooding has increased because of rising sea levels, which were roughly 13 inches higher nationally last year than in 1920, the agency reported. The number of days with high-tide flooding set or tied records in 19 places around the country last year, including Corpus Christi, Texas, which recorded 18 days of flooding; Galveston, Texas (18 days); Annapolis, Md. (18 days); and Charleston, S.C. (13 days). The place with the greatest number of recorded flood days was Eagle Point, Texas, in Galveston Bay; it reported high-tide flooding on 64 days, or almost one day out of five. Those numbers represent huge jumps in a short period of time. In 2000, Corpus Christi had just three days of tidal flooding; Charleston had just two. The report notes that Charleston recorded just 13 days of high-tide flooding in the more than 50 years that measurements were first kept — the same number that occurred last year alone. That trend is likely to accelerate, the agency said. By 2030, NOAA projected, the frequency of high-tide flooding could double or triple. By 2050, it said, that number could be five to 15 times as great, with the typical coastal community flooding between 25 and 75 days a year. “You see where this is going,” Ms. LeBoeuf said. “We all need to pay attention.” The new data comes as the Trump administration continues to play down the threat of global warming, which is the driving factor behind sea-level rise. President Trump is pulling the United States out of the Paris climate accord, and his officials have cited the coronavirus pandemic in efforts to weaken crucial environmental provisions
In a separate report Tuesday, a government watchdog found that his administration was understating the cost of climate change in its regulations. NOAA, like other government scientific agencies, has been subject to political pressure. The White House pushed the agency to rebuke weather forecasters who contradicted Mr. Trump’s inaccurate claim last year that Hurricane Dorian would strike Alabama, the agency’s inspector general reported last week. Still, the agency has mostly been allowed to continue gathering and releasing data showing the effects of climate change. Tuesday’s report opened with what amounted to a warning: “Sea level rise flooding of U.S. coastlines is happening now, and it is becoming more frequent each year.” Yet the report was silent on the cause of rising seas, containing no mention of climate change or global warming. “Climate change and carbon emissions are a factor at play when we look at how tides are rising,” Ms. LeBoeuf acknowledged in the call with reporters, adding the paper had not been reviewed or edited by political officials. But she emphasized that the report, strictly speaking, was limited to data collected from the tide gauges. The question of what is causing seas to rise is, she said, “a little different.”
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Previously reported – October 2020
National Flood Insurance Program: Reauthorization
Congress must periodically renew the NFIP’s statutory authority to operate. On October 1, 2020, the President signed legislation passed by Congress that extends the National Flood Insurance Program’s (NFIP’s) authorization to September 30, 2021.
Congress must now reauthorize the NFIP by no later than 11:59 pm on September 30, 2021.
FEMA and Congress have never failed to honor the flood insurance contracts in place with NFIP policyholders. Should the NFIP’s authorization lapse, FEMA would still have authority to ensure the payment of valid claims with available funds. However, FEMA would stop selling and renewing policies for millions of properties in communities across the nation. Nationwide, the National Association of Realtors estimates that a lapse might impact approximately 40,000 home sale closings per month.
NFIP reauthorization is an opportunity for Congress to take bold steps to reduce the complexity of the program and strengthen the NFIP’s financial framework so that the program can continue helping individuals and communities take the critical step of securing flood insurance.
The level of damage from recent catastrophic storms makes it clear that FEMA needs a holistic plan to ready the Nation for managing the cost of catastrophic flooding under the NFIP.
Flood insurance – whether purchased from the NFIP or through private carriers – is the best way for homeowners, renters, business, and communities to financially protect themselves from losses caused by floods.
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White House approves National Flood Insurance Program for another year
The National Flood Insurance Program, which was set to expire Sept. 30, was signed into law Thursday, Oct. 1. Earlier last week, the U.S. Senate and House of Representatives voted in favor of continuing NFIP. President Donald Trump signed approval on Thursday. “Since it was reauthorized it’s good news for homeowners,” said Holden Beach resident Louis Cutajar. NFIP provides insurance to help reduce the socioeconomic impact of floods. The flood insurance program is managed by the Federal Emergency Management Agency and delivered to the public by a network of approximately 60 insurance companies. “Flood insurance is available to anyone living in one of the 23,000 participating NFIP communities,” FEMA posted on its website. “Homes and businesses in high-risk flood areas with mortgages from government-backed lenders are required to have flood insurance.” According to St. George News, “Floods are the most common and expensive natural disaster in the U.S. Just an inch of water in an average-sized home can cause $25,000 in damage. However, unlike many causes of damage, flooding and mudflows are generally not covered by a homeowners’ policy. An uninsured flood loss can eat into your life’s savings.” In June, federal agencies collaborated to clarify rules related to flood insurance requirements. Comments were received regarding more guidance on renewal notices for forced-paned insurance policies, flood insurance amount requirements and requirements for tenant-owned buildings or detached structures. According to a DS News report, changes to the interagency document make it easier for lenders, servicers, regulators, and policyholders to find sections pertinent to them.
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Community Rating System (CRS)
The Town’s CRS rating is being lowered from eight (8) to seven (7) which will result in an additional downward adjustment to all property owners flood insurance premiums. That would be the third favorable adjustment, each with a 5% reduction of your flood insurance premiums. To be clear, we will now enjoy a 15% reduction in flood insurance premiums due to the new lower CRS rating. Timbo has been the driving force in getting us to qualify for the lower rating allowing us to enjoy significant savings and is very much appreciated. KUDOS!
Previously reported – February 2021
Flood-prone homeowners could see major rate hikes in FEMA flood insurance changes, new study finds
With a major overhaul of the nation’s flood insurance program just months away, new data released Monday by the First Street Foundation suggests hundreds of thousands of homeowners in the riskiest locations across America could face massive rate hikes starting in October. The Brooklyn, New York-based research group estimates the average rate needs to more than quadruple on the nation’s most flood-prone homes under the ongoing effort to make the federal flood insurance program solvent and ensure homeowners most at risk are paying their fair share.
First Street data projects that the majority of homeowners won’t see big rate changes, and others could see premiums decrease. But for some 265,000 properties, annual premiums would need to climb $10,000 or more to match the actual risk. Those with more expensive properties are estimated to see the biggest premium increases. Any actual rate hikes adopted by the federal government would be slowly phased in for existing policyholders.
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Flood Insurance Costs Vastly Underrated by FEMA, New Report Says
At a Glance
- A new report takes into account the cost of damage.
- FEMA doesn’t currently factor that in to flood insurance premiums.
- The fee structure for the federal flood insurance program is set to change this year.
Hundreds of thousands of homeowners across the U.S. would pay considerably more in federal subsidized flood insurance if rates accurately reflected the risk, according to a new report from research group First Street Foundation. The report comes at the same time the Federal Emergency Management Agency is working to revise premiums for the National Flood Insurance Program. FEMA says the new premiums will be more in line with real-life costs. If the First Street data is any indication, that could mean rates more than five times higher than what they currently are. First Street, a nonprofit research and technology group, identified 4.3 million residential properties as having substantial flood risk that would result in damage and financial losses. Under current FEMA rules, flood insurance rates are based mostly on whether or not a property is within a designated Special Flood Hazard Area, which requires flood insurance if a homeowner has a federally backed mortgage. The rates don’t take into account a home’s value, estimated cost of damages in the event of a flood and other factors, according to Matthew Eby, founder, and executive director of First Street. That means the cost of flood insurance for a $300,000 home could be the same as for a million-dollar home. “The rates are really low for some properties that have substantial risk,” Eby told weather.com in a recent interview. “And the reason for that is because FEMA does a zone-based approach to flood risk.” The foundation calculated annual estimated losses over a 30-year-period to determine what homeowners should be paying for flood insurance. About 2.7 million of the properties identified by First Street are outside of an SFHA. The foundation estimates that under the current system, flood insurance costs would need to increase by 5.2 times, which would bring annual premiums up to about $2,484 a year. Those inside an SFHA would face premium increases of 4.2 times, costing $7,895 a year. Costs would vary once other factors are thrown into the mix. And the prices would go up as climate change increases costs and makes flooding more likely, according to the report. The total expected loss from flooding this year is $20 billion. But that goes up to nearly $32.2 billion in 30 years. FEMA is expected to raise rates for flood insurance on Oct. 1. The agency says people should not assume that the First Street estimates are the same as the new NFIP rate structure, called Risk Rating 2.0. “Any entity claiming that they can provide insight or comparison to the Risk Rating 2.0 initiative, including premium amounts, is misinformed and setting public expectations that are not based in fact,” David I. Maurstad, who runs the flood insurance program for FEMA, said in a statement, according to the New York Times. The NFIP is operating under a loss of more than $36 billion, according to First Street. First Street introduced a new tool last year called Flood Factor, which is an interactive website that lets people look up flood risk by address. As part of its new report, the foundation added estimated costs of flood damage and losses over the course of 30 years to the tool.
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Previously reported – March 2021
Big flood insurance rate changes are coming to NC. Will they be fair?
Climate change denial isn’t just the domain of recalcitrant contrarians. It’s baked into the way the risks and costs of flooding are calculated in North Carolina and around the nation. Government-backed flood insurance – often the only option for homeowners along the coast and near rivers – is based on outdated flood maps that fail to reflect how climate change is increasing the regularity and scale of flooding. Those maps have skewed insurance rates downward and left wide swaths of land where properties should be insured against flooding but are not.
Fortunately, that’s about to change. The National Flood Insurance Program (NFIP) managed by the Federal Emergency Management Agency (FEMA) is preparing to unveil the sweeping changes in assessing flood risk and setting insurance rates. The new approach, called Risk Rating 2.0, will begin Oct. 1. In North Carolina, with its long coast and many flood-prone areas within its coastal plain and mountain region, the changes will have a major impact. There will be a shift in rates – higher for some, lower for others – and more accurate risk assessments could show more property owners that they need protection against flooding. NFIP rates will no longer be based on zones. Instead properties will be individually rated depending on updated weather patterns and individual aspects of a specific property. Amanda Bryant, director of the website myfloodrisk.org, said that will mean higher rates for more vulnerable homes. “The new risk assessment will show the majority of coastal properties in North Carolina are at more risk,” she said. Former North Carolina insurance commissioner Wayne Goodwin said the rate increases come after Congress has long postponed setting premiums high enough to cover the actual risk. “The longer you wait to correct something, the greater the pain and that’s what’s happening here,” he said.
FEMA is not saying yet how much the new risk assessment will drive up rates and when. Annual premium increases are capped by law at 18 percent, but the escalation over time could change who can afford to live in coastal areas. An analysis by the First Street Foundation, a non-profit that assesses flood risks, projects that some properties could face massive rate hikes. The predictions of rate shocks for expensive homes should not obscure that the changes will benefit owners of more modest homes, said Don Hornstein, a University of North Carolina law professor who specializes in insurance law. The current system sets rates too broadly, he said, and that leads to lower-income homeowners subsidizing the cost of flood insurance for higher-income homeowners. Hornstein said the rate changes are “going to fix that by eliminating these cross subsidies that go the wrong way.” As a result, he said, more homes will get price decreases than price increases. But also more homes should get flood insurance. “Climate change is indeed driving the flood risk up for everyone,” said Rick Luettich, director of the Center for Natural Hazards Resilience at the University of North Carolina at Chapel Hill. Luettich, who develops flooding models, said the new risk assessments will be helpful to homebuyers. “There’s an aspect of it being good news if you have a better understanding of what the hazard level is and you can make a better decision about whether you want to live there,” he said. Meanwhile, North Carolina Insurance Commissioner Mike Causey sees an option to higher federal flood insurance rates. He is pushing to have private insurers get back into the flood insurance business they fled in the 1960s, necessitating the creation of the NFIP. Causey said during a meeting with Carteret County officials last year that private insurance policies could be “far superior to anything under the federal program.” He also wants more homeowners to buy flood insurance regardless of whether they are in a designated flood zone. “My message to everybody is if it rains where you live, you need flood insurance,” he said, “We’re all in a flood zone, it’s just a matter of whether you’re in a high-risk flood zone or low risk.”
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FEMA pauses flood insurance rate update after Schumer pushback: report
The Federal Emergency Management Agency (FEMA) has paused an impending update to flood insurance rates, aimed at making the country more prepared for risks of climate change, after objections from Senate Majority Leader Charles Schumer (D-N.Y.), The New York Times reported Thursday. FEMA was reportedly set to announce new rates on April 1 to better factor in climate risks, a move that aimed to reduce construction in areas with significant threats but could have increased some costs for people who live in those areas. The Times reported, citing anonymous sources, that Schumer fought the changes, and that his efforts halted FEMA’s action. Neither FEMA nor a spokesperson for Schumer immediately responded to The Hill’s request for comment. Schumer spokesperson Alex Nguyen told the Times that the agency should consult Congress before taking action and called for “affordable protection.” “FEMA shouldn’t be rushing to overhaul their process and risk dramatically increasing premiums on middle-class and working-class families without first consulting with Congress and the communities at greatest risk to the effects of climate change,” Nguyen said. “Congress and the Biden administration must work together in a collaborative and transparent process.” An agency spokesperson told the newspaper that FEMA will continue to work with Congress to carry out the plan and its changes will “better reflect an individual property’s unique flood risk.” When he was on the campaign trail, President Biden’s climate plan included provisions saying he wanted to help make the country more resilient to the impacts of climate change. His plan also notes, however, that resilient efforts “must consciously protect low-income communities from ‘green gentrification’ ” in a section that noted that some mitigation efforts can raise property values. Schumer, meanwhile, publicly pushed back on proposed FEMA flood insurance changes in 2019, saying they “unfairly put a bullseye on the backs of Long Island and New York homeowners,” and that the agency should “halt.”
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Previously reported – April 2021
U.S. rolls out first update to flood insurance pricing in 50 years
Hundreds of thousands of Americans will pay significantly more to insure their homes in coastal areas and flood zones under new rules released on Thursday by the Federal Emergency Management Agency (FEMA), the first major update to its pricing system in half a century. The agency said that, over the coming year, it will phase in a price-setting method that marks an epochal shift in the National Flood Insurance Program (NFIP), which was set up in 1968 to cover property in flood-prone areas. New premiums will be based on a property’s value, risk of flooding and other factors, rather than simply on a property’s elevation in a flood zone. They will take effect on Oct. 1, 2021, for new policies and April 1, 2022, for the rest, FEMA said. The NFIP currently provides $1.3 trillion in coverage through more than 5 million policies in the U.S. but has been losing money for years and is currently $20.5 billion in debt. The new rules will mean hefty increases for expensive properties in wealthy coastal enclaves, said Jeremy Porter, head of research and development at First Street Foundation, a Brooklyn-New York based nonprofit that studies flood risk. Current flood zone-based pricing was “basically a subsidy to people,” Porter said. Under FEMA’s new system, “pricing is based on your insurance risk.” FEMA said it expects 4%, or more than 200,000 policies, will see significant premium increases, while about 1.15 million will see decreases, noting the change makes prices “more equitable.” In a study released in February of flood-prone properties rather than policies, First Street determined that more than 4 million would face increases and the average premium in flood zones would be $7,895 a year. The numbers in First Street’s study are higher than FEMA’s because only about 30% of flood-prone properties carry NFIP coverage, Porter noted. The changes mark the first update to FEMA’s pricing methods in 50 years and are based on updated technology and FEMA’s evolving knowledge of flood risk, the agency said.
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Millions to see rate hikes under new flood insurance plan
More than 1 million people who buy flood insurance from the federal government will see their premiums drop next year under a new system that will end decades of overpayments by making insurance rates more accurately reflect a property’s flood risk, officials said yesterday. At the same time, premiums charged by the National Flood Insurance Program will rise sharply for about 200,000 policyholders, many of whom own expensive homes in high-risk flood zones and have been paying too little, the Federal Emergency Management Agency said. The vast majority of NFIP policyholders — roughly 3.7 million people — will see moderate rate increases, according to FEMA projections released yesterday. “This will address inequity that has built up over time and must be corrected,” said David Maurstad, who runs the flood insurance program for FEMA. “Property owners with lower-value homes are paying more than they should, and those with higher-value homes are paying less.” Many owners of lower-valued homes have been “paying way more than their fair share,” Maurstad added. The NFIP is the nation’s main provider of flood insurance, which is not included in standard homeowners’ insurance policies. It insures 5 million properties, mostly along the Atlantic and Gulf coasts. The overhaul in FEMA’s flood insurance rates could generate opposition from some lawmakers, particularly those from the Northeast, where a large number of people will see rate hikes. A 2019 bill by Sens. Robert Menendez (D-N.J.) and Chuck Schumer (D-N.Y.), who is now the Senate majority leader, would have barred FEMA from raising anyone’s insurance rate by more than 9% a year. New York and New Jersey will be two of the hardest-hit states under FEMA’s new system. In New York, 14% of the state’s NFIP policyholders will see their premiums increase by at least $120 a year, according to FEMA projections. In New Jersey, 15% of the policyholders will see premiums rise by $120 a year or more. “FEMA shouldn’t be rushing to overhaul their process and risk dramatically increasing premiums on middle-class and working-class families without first consulting with Congress and the communities at greatest risk to the effects of climate change,” Schumer spokesperson Alex Nguyen said in a recent statement. “Congress and the Biden administration must work together in a collaborative and transparent process.” By contrast, the percentage of policyholders facing at least a $120-a-year increase is 7% in Texas, 9% in Alabama and North Carolina, and 10% in Louisiana. In Florida, where more people buy NFIP coverage than any other state, 12% of the state’s policyholders will see a rate increase of at least $120 a year. Some policyholders will face the annual rate hikes for only a few years, while others who have been paying too little for insurance for a long time will see rate hikes for a decade or longer. The new rates will begin to take effect next April for people who are renewing policies. For new policyholders, the new premiums will take effect in October. FEMA’s announcement yesterday drew praise from environmental advocates. “This isn’t just a minor improvement but a quantitative and qualitative leap forward in more accurately pricing risk,” said Forbes Tompkins, head of the Pew Charitable Trusts’ resilient infrastructure program. Shana Udvardy, a climate resilience analyst at the Union of Concerned Scientists, said FEMA’s new insurance rates “could go a long way in helping homeowners better understand their risk, ensuring they can make informed decisions to protect themselves and their property.” The new insurance rates are the result of a yearslong process FEMA has undertaken to refine its analysis of flood risk. Under the new system, called Risk Rating 2.0, FEMA uses the latest technology and data to estimate both the risk of an individual home being flooded and the cost to replace each home. For decades, FEMA has used a crude analysis that puts homes into large geographic groupings and charges the owners the same insurance premium, ignoring distinctions that make some of the homes riskier than others. “It’s like going from a standard-definition TV to HD-quality resolution,” Tompkins said. Incorporating replacement costs into insurance premiums would result in generally higher rates in regions such as the Northeast and the West Coast, where labor and materials are more expensive than in the rest of the country. Maurstad of FEMA said he expects the new pricing would increase the number of people who have flood insurance by making the rates fairer and easier for homeowners and insurance agents to understand. “It will result in greater value and trust in the program. As a result, folks that maybe didn’t think they were at much of a risk of flooding will now know that they are, and it will be harder for them to ignore it,” Maurstad said during a news briefing yesterday. Federal law requires people to have flood insurance if they own a property that is located in a flood zone and is secured by a federally backed mortgage. But millions of people ignore the requirement, and in some cases face financial ruin when their homes are flooded and they have no insurance.
Previously reported – July 2021
Coastal Connection: Risk Rating 2.0 will change the entire flood industry
When FEMA announced the transformation of the National Flood Insurance Program with updated and modernized rating dubbed Risk Rating 2.0, questions and concerns were raised from various industries such as insurance agents and real estate professionals. As FEMA begins to release details around Risk Rating 2.0, it’s clear that the National Flood Insurance Program transformation will not just impact insurance rating, it will impact the entire flood industry. From private flood insurance companies to floodplain managers, each stakeholder will be influenced by Risk Rating 2.0’s implementation. FEMA has branded Risk Rating 2.0 as Equity in Action since the coming changes will make the National Flood Insurance Program rates more fair and easier to understand. Equity in Action replaces the current binary “in versus out” of a high-risk flood zone pricing methodology. Rather, it uses “graduated” rating, which is a pricing methodology based on factors such as distance to water, types of flood exposure, and other advanced elements. Equity in Action will also bring more equity to National Flood Insurance Program policyholders by basing rates off of the building’s replacement cost. The higher the building’s replacement cost, the more expensive the premium, and vice versa. In April, FEMA issued a press release on Equity in Action and state fact sheets showing projected rate changes:
- 11% of NFIP policyholders will see a premium increase of over $120 per year.
- 63% of policyholders will see premium increases of $0 to $100 a year.
- 23% of NFIP policyholders will see a premium decrease.
The changes in the new National Flood Insurance Program rating methodology will have impacts throughout the entire insurance industry. For example, once Equity in Action takes effect, private flood insurers may find expanded or changed opportunities to sell policies that will close the insurance gap. Overall, what FEMA will accomplish in the transformation is making the National Flood Insurance Program part of a rapidly evolving and competitive flood insurance environment where insureds ask to see a quote from multiple carriers, one of them being the National Flood Insurance Program. Changes under Equity in Action are not limited to the world of insurance. The impacts and benefits of mitigation options, such as the elevation of a home, have been difficult to clearly communicate, and are not always viable. The coming changes to the National Flood Insurance Program bring better solutions and easier communication for mitigation options. Under Equity in Action, premium credits will now be given for the elevation of mechanical equipment, currently not a creditable mitigation activity under the National Flood Insurance Program. The NFIP is changing how home elevation premium reductions are calculated. Currently, premium discounts max out when a building is elevated 4 feet above the base flood elevation. But with Equity in Action, the higher you go, the less the premium will be. Importantly, mitigation credits will apply everywhere, not just for those properties in the high-risk flood zone. These changes will also enhance the flood resilience of our communities. As the financial benefit of mitigation grows, so will the elevation and mitigation of buildings. Essentially, the mitigation elements of Equity in Action will have a trickledown effect that benefits many other stakeholders. In April of this year, House Financial Services introduced a discussion draft of a National Flood Insurance Program reauthorization and reform bill. The bill, among its other elements, proposes to lower the annual increase cap on National Flood Insurance Program premiums from 18% to 9%. Since FEMA notes that policy premiums will increase up to the maximum statutory cap under Equity in Action, this was a clear reaction from Congress. While there are still legislative issues and priorities to tackle, Equity in Action will address long standing programmatic issues that Congress may no longer need to address in forthcoming flood reform such as using replacement cost when determining rates. In early 2021, a media storm followed the release of information about potential impacts of Risk Rating 2.0. For the first time, those who never heard of or cared about flood risk began to talk about the topic and Equity in Action will make flood risk easier to communicate. Equally important is to understand that the change that FEMA is planning will impact far more stakeholders than just those that interact with National Flood Insurance Program insurance. Equity in Action modernizes the National Flood Insurance Program in a way that has not been seen in the 53-year history of the program. Whether stakeholders involved appreciate the changes or not, Risk Rating 2.0 will change the landscape of insuring against and communicating flood risk.
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