Five Climate-Smart Actions to Reform Flood Insurance

A report calculating the effects of sea level rise on coastal property released by the real estate company, Zillow, made big waves last week. Combining their real estate database of more than 100 million properties nationwide with coastal maps projecting six feet of sea level rise from the National Oceanic and Atmospheric Administration (NOAA), Zillow uncovered a whopping $882 billion in damages by the end of the century. According to the report, nearly 300 U.S. cities would lose at least half of their homes, 36 U.S. cities would be completely lost, and a total of 1.9 million homes will be at risk of going underwater by 2100.

Click here to access the National Oceanic and Atmospheric Administration's (NOAA) interactive map of sea level rise and coastal flooding impacts

Keep in mind, Zillow’s estimate omits some other costs. Their estimate of nearly one trillion dollars doesn’t reflect damages to public infrastructure or commercial and small businesses. It also doesn’t take into account that the U.S. population living in coastal counties is expected to increase by 50%-144% by 2100, bringing with it more development.

Combine people’s desire to live near water with the increasing risk of living there and you have a recipe for disaster or, more likely, multiple disasters. Zillow’s study highlights the price tag of those future disasters.

Estimated damages to coastal states by 2100 (Zillow)

Further complicating the problem is the National Flood Insurance Program (NFIP). Administered by the Federal Emergency Management Agency (FEMA), the NFIP provides low-cost insurance to 5.5 million policy holders in 22,000 communities nationwide. The NFIP is currently $23 billion in debt because it pays more to cover repairs from flood damages than it collects in premiums. In the coming decades, could the NFIP afford to pay out the $882 billion in damages that Zillow has tallied, plus the damages associated with future development? Not by a longshot. Moreover, should taxpayers be left holding the bag for properties that we can anticipate going underwater anyway?

That’s why we need to make some much needed changes to the NFIP. NRDC has developed a comprehensive set of policy goals that we’re calling on Congress to enact when it reauthorizes the NFIP in 2017. Check out these five climate-smart reforms:

1. Establish risk-based insurance rates

Roughly 20% of the 5.5 million properties that are insured through the NFIP have paid premiums that have little to no relationship to the actual cost of flood damage. These properties are often repeatedly damaged by floods, contributing even more to the huge debt the NFIP has accumulated. Congress has made a few reforms, but so much more must be done to ensure property owners pay a price for flood insurance that reflects the actual potential for flood damages. Risk-based rates should be implemented for so-called grandfathered properties (properties that retain the same flood insurance at the time of purchase, despite increasing flood risk), and other federal subsidies must be phased out. NRDC is part of a coalition, Smarter Safer, which is calling for these kinds of reforms.

2. Guarantee assistance to low-income property owners

While risk-based rates are essential for sending the right “market signal” to homeowners about flood risk, low-income residents may find it difficult to afford. Along our nation’s coasts, up to 50% of areas with high social vulnerability are likely to face unplanned displacement under the 1 to 4 foot range of projected sea level rise (check out our blog on how climate risks must be considered to help the nation’s poorest). That’s why NRDC is urging creation of a “discounts for buyouts” option, whereby low-income, frontline residents would receive affordable flood insurance in the short-term—which would allow them to stay in their home with coverage—in exchange for a commitment to accept a buyout of their property when it is damaged in excess of 50% of its present value.

3. Improve accountability and enforcement

FEMA doesn’t always take action against communities and policyholders who fail to adhere to the minimum standards of the NFIP. Moreover, FEMA doesn’t have the required resources to oversee and ensure 22,000 communities are complying with its standards for floodplain management. When enforcement is lax, taxpayers have to pick up the tab for damages caused by those who flout the rules. NRDC thinks there may be a role for states in enforcing the provisions of the NFIP, whereby states could be delegated some of the powers to ensure compliance with NFIP standards.

4. Require “Right to Know” provisions

When you buy a car, you can easily access a report of prior accidents and repairs. When you buy a house or property, on the other hand, you can’t find out how often it has flooded or how much damage it has sustained. Even at the national level, there is very little data available about flood insurance and damage claims. The public and property owners have a right to know about a property’s flooding history, as well as national costs. NRDC is advocating for greater availability of data on flood damages, claims paid by FEMA through the NFIP, and enforcement and compliance data.

5.  Strengthen mandatory provisions for mitigating flood risk

One of the few mandatory provisions in the NFIP states that homeowners must elevate (i.e. raise their home on stilts), relocate, or accept a buyout if their home is damaged in excess of 50% of its value (defined as “substantial damage”). However, under the NFIP, that standard is for a one-time event. Even then, there are cases in which communities fail to enforce the substantial damage standard. Some states and communities have adopted a cumulative definition of substantial damage so that repeated flood damages that add up to more than 50% of a property’s value trigger mitigation requirements. Making this a national standard would expedite flood mitigation actions across the country.

The climate is changing, and so should the manner in which we approach its potentially devastating effects. With sea level rise threatening the nation’s coasts, we must reexamine our role in providing insurance to properties vulnerable to flooding and coastal storms. NRDC is committed to providing climate-smart, fiscally responsible reforms to the National Flood Insurance Program to better prepare and protect our nation.

Rachel Mickelson contributed to this post.

About the Authors

Rob Moore

Senior Policy Analyst, Water program

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