AP Flood Insurance Story Needs Clarification

It’s been a disappointing month on the National Flood Insurance front.  The House and Senate passed legislation to reinstate dangerous flood insurance subsidies for certain types of properties, which the President signed into law last week.  To cap it all off, last weekend, the Associated Press (AP) published a research report that provided some interesting insights but also some off-the-mark analysis.

It’s not hard to figure out how a bill to reinstate insurance subsidies got passed in an election year…that’s strictly politics. NRDC would like to thank those members of Congress who did not support reinstating subsidies.  Senators Toomey and Coburn were particularly helpful in trying to find ways to make more targeted reforms.

But the AP report, while presenting some very good information about the current conundrum we face between flood insurance prices and the increased risk of flooding included a few points that should be clarified. The report also told the story of people facing higher flood insurance rates, but didn’t tell us why those rates were increasing. Namely because lot of people live in areas that are at great risk of flooding and that risk is increasing due to climate change. 

These are not easy issues to deal with.  A large number of low and middle income families currently live in flood prone areas and areas vulnerable to sea level rise.  NRDC does not take that lightly.  But we also need to face the reality. Making flood insurance cheap does nothing to address the long-term risks. We need  solutions that can help people make ends meet, but ultimately helps find people places to live that are safer and more resilient to the impacts of climate change and flooding.

Below, I’ve highlighted a few aspects of the AP report that could benefit from some additional information.

 “As many as 1.1 million policyholders with subsidized government insurance will still be hit with steady rate increases.”

AP assumes that 100% of subsidized policies will see price increases, as there are only 1.1 million recipients of subsidized insurance rates, according to the Government Accountability Office. This wasn’t true before Congress reinstated subsidized rates for certain properties.  It’s not true now that Congress has reinstated some subsidized rates.

According to FEMA data, only 252,851 of the over 5.5 million policies (4.5%) issued under the National Flood Insurance Program will see price increases in the near-term as a result of the Biggert-Waters Flood Insurance Reform Act of 2012, and these are vacation homes, business properties, and properties that have been repeatedly damaged by floods.  These policies will see rates increase 25% per year until actuarial risk-based rates are reached. 

“But at least 820,000 homeowners will still get hit with rate increases of up to 18 percent each year until the program is collecting enough revenue to cover a $24 billion shortfall created by the long-running discounts and a series of catastrophic storms”

Since 1994, FEMA has had the authority to raise insurance rates for certain policies at its discretion.  In the bill passed this month, Congress capped that discretionary increase at 18% per year. But there is little evidence to suggest that FEMA will use that authority to impose a double digit rate increase on hundreds of thousands of policies solely at its discretion. AP even mentions, much later, that Congress further directed, “FEMA to ‘strive to minimize’ the number of policies with an annual premium that exceeds $1 for every $100 in insurance coverage,” which works out to a 1% rate increase.  

The Portanovas

The AP report highlights several people who are dealing with flood insurance issues.  Most media stories take the same approach as AP adopted, which is to report the increased price in flood insurance premiums without delving into why these people’s rates might be increasing.  I’ve tried to get to some of that below.  My apologies to the Portanovas for continuing to put you in the limelight. 

The story about the Portanovas’ properties highlights some realities about flood insurance reforms.  They are going to lose subsidized rates, because (at least some of) the properties are not their primary residence.  The story says that, “Within five years, the [flood insurance] bill will be more than $8,700. Within a decade, it will be more than $26,000.” This is also true, as the two properties (there may be others, but the AP picture shows the Portanovas standing in front of what looks like several) will see an annual increase of 25% until risk-based rates are met in about ten years. 

So why would the price of insurance increase so much? AP didn’t go into this.

Turns out the Portanovas’ properties are at pretty high risk of flooding. I did some research and found that these properties sit very near the bank of the river (I’m not going to publish their address or give the specific location out of respect for the Portanovas).  FEMA’s flood maps for Jersey Shore, PA and a flood prediction tool from the National Weather Service show that these properties will be about 7-8 feet underwater during a 100-year flood, the flood of record that insurance rates are based upon. A 100 year flood is not one that happens every hundred years, but has a 1% chance of occurring each year, assuming no changes to the topography or climate and the maps are up to date and accurate.   The Portanovas’ properties will also be affected by smaller, more frequent floods.  From the data it shows that 3 floods have occurred in the last 40 years that would have reached the Portanovas’ properties (flood stage greater the 30 feet), including a 100-year flood in 1972 (flood stage greater than 38 feet). So their property is pretty likely to flood and suffer damage in the next 10-20 years. 

Should it cost more to insure a property at greater risk of flooding than a property that has a very low risk of flooding?  Yes, that makes lot of sense.  Is there any way the Portanova’s could have known in 2012 that flood insurance rates would increase when they purchased the property?  Probably not, and that’s not entirely fair to them.

There are certainly instances where people need a helping hand and we should give them assistance so they have flood insurance.  Maybe the Portanovas and the other people highlighted in the AP story are among those.  But for how long? 20 years? Until the next flood?  Indefinitely?  And how many times should we rebuild those properties in the same risky areas? 

The problem we face is that the risk of flooding is increasing. Climate change is causing sea levels to rise in coastal areas and increased precipitation raises the likelihood of flooding along the nation’s rivers.  Damages from storms and floods has been on an upward trend for a few decades. We cannot afford to encourage people to live in harm’s way.

There are aspects of the AP story that shed light on important considerations.  Was there a problem with affordability for some policy holders after passage of Biggert-Waters in 2012?  Yes, absolutely. But Congress did not simply address affordability. Instead, the House and Senate reinstated subsidies for at-risk properties regardless of whether owners could or could not afford rate increases. AP cites Sen. Tom Coburn who said, "We didn't really do our work because we were in such a hurry to take the political pressure off of the increases in the flood insurance rates."

The fact of the matter is that cheap insurance isn’t going to stop sea level rise or floods. Congress may think it has solved a short-term problem of insurance affordability, but it has actually perpetuated a long-term problem of increasing flood risk.

We need a very different strategy for dealing with these risks as our climate continues to warm. from NRDC’s perspective that solution has three important components. 

  1. Accurate information about the current and future risk of flooding. FEMA’s flood maps need to be updated to reflect the current risk of flooding, and also the future risks that climate change brings. 
  2. Flood insurance prices need to be reflective of the flooding risks.  Does that mean we need to eliminate all subsidies for everyone?  No, but it does mean if we continue to provide subsidies it is with the knowledge that ultimately we need to help those policy holders locate to a safer place at some juncture.
  3. Make it easier for people to relocate after a flood.  At present, people have to be pretty determined to jump through the extra hoops necessary to get state and federal assistance to relocate.  After a flood, we need to make relocation the most attractive option available. Maybe even make it possible for them to choose to relocate well in advance of a flood, perhaps in exchange for subsidized rates?