The Changing Climate For Flood Insurance (Op-Ed)

Rob Moore is a senior policy analyst for NRDC where he is part of a team devoted to protecting U.S. water resources. This article is part of a short series on national flood insurance on the NRDC blog Switchboard. He contributed this article to LiveScience's Expert Voices: Op-Ed & Insights.

On July 6, 2012, President Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters), putting in place long-overdue reforms. Among the most important reforms is the phasing-out of certain subsidies that flood-prone properties have received for decades, properties that are increasingly at risk due to rising sea levels and the greater flooding along U.S. rivers thanks to a rapidly warming climate.

Understandably, there is pushback from some who may pay more for flood insurance, which is provided and generously subsidized through the federal government's National Flood Insurance Program (NFIP). But it's important to understand the impact of those subsidies, the shortcomings of the NFIP in general, and why climate change makes it more important than ever to make substantial reforms.

A flurry of news reports have appeared in the last several weeks in the New York Times, the Wall Street Journal and many articles in the New Orleans Times-Picayune. The stories share some common elements. They include a dramatic headline with words like outrage and backlash. And the stories leave the impression that the price of federal flood insurance is going to go through the roof for all — or, at least a whole heck of a lot of people — which is not quite the case.

What's almost always overlooked is the need to make changes to the NFIP, and the need to make even bigger changes even faster if the NFIP is to keep up with the increased flooding challenges that climate change is bringing to shorelines and floodplains.

Common-sense reforms for a non-sensical program

Starting this year, Biggert-Waters is making long-overdue changes that will eliminate flood insurance subsidies for:

properties that have frequently flooded and made multiple flood-insurance claims;
properties that have suffered severe flood damage, or had cumulative claims that equaled or exceeded the value of the property;
businesses; and
second homes and non-primary residences.

Insurance premiums for those properties will rise 25 percent each year until they ultimately reflect the full cost of flooding risk. According to a recent analysis conducted by researchers at the Government Accountability Office (GAO), the non-partisan and respected research arm of Congress, those changes will only affect 7.9 percent of all NFIP policies (437,934 out of 5,537,388 policies). Of those, only 1.2 percent (5,254) cover a person's primary residence, while 98.8 percent of the properties slated to lose their subsidies are second homes (345,192) or business properties (87,488).

Even after those reforms go into effect, there will still be 715,259 subsidized policies issued by the NFIP, 704,230 of which are primary homes. New York, New Jersey, Florida, Louisiana, Texas and California have the largest number of subsidized flood-insurance policies. As a percentage of the total number of NFIP policies issued by state, Michigan, Indiana, Illinois, Ohio, Wisconsin, Kansas and Pennsylvania lead the nation.

For a county by county breakdown of subsidized insurance policy holders, FEMA has created a really cool GIS map so you can see how your hometown stacks up.

More changes as flood maps updated

As FEMA updates its flood maps, other subsidies will be phased out — some of which have not been revised in three or more decades. New maps have been released for all or parts of 27 states and await final approval by communities and FEMA. The new maps rely on more up-to-date hydrological data, elevation data and land-use information. Not surprisingly, they show that a much larger area is at risk of flooding.

FEMA's flood maps are so outdated that they do not reflect the true flooding risks for many areas. This became quite evident in Hurricane Sandy . The areas that were actually flooded were far more extensive than FEMA's flood maps led people to expect — those maps undoubtedly contributed to insufficient planning and a more challenging response to flood damages that were far more extensive than for what city officials and residents were prepared.

In addition to new flood maps revealing more people at risk of flooding, the updates mean many more people are probably going to need to buy flood insurance, since federal flood insurance is required for some properties (such as those with federally backed mortgages). Most of hose properties will no longer be eligible for subsidized rates. Under Biggert-Waters, as new flood maps are approved, property owners may have to pay higher premiums or lose taxpayer subsidies when:

a new policy is purchased;
a property is sold;
if residents allowed their flood insurance to lapse; or
if a property experiences severe or repeated flood-related losses.

As maps are updated, people may find that their property is below what's known as the "base flood elevation," which is how high FEMA expects a major flood to rise.

For example, prior to passage of Biggert-Waters, property owners would have each paid $2,235 per year for flood insurance whether their structures were one foot above the base flood elevation, one foot below the base flood elevation, or 10 feet below the base flood elevation.

Are those three properties are at an equal risk of flooding? Of course not. But prior to passage of Biggert-Waters, the three properties would have been treated the same, with the owner of the property at greatest risk getting a taxpayer-subsidized incentive to live in a risky, flood-prone area.

In the future, as new flood maps are approved and after new rate assessments, the person who has property one foot above the water when it floods will see asavings of $1,506, while the property that is 10 feet underwater when it floods will pay more — a lot more.

But those higher actuarial, or risk-based, insurance rates will only happen once flood maps are updated and if a property owner sells a property, allows an existing policy to lapse or suffers severe or repetitive flood damage. And, the law phases in the increase over a five-year period.

Should someone who's property may be ten feet underwater during a major flood (and probably under water more frequently, even during minor floods) pay more for flood insurance? The answer is yes, according to the actuaries and risk-analysts whose decisions are based on what the facts and numbers say. If your home is more likely to flood, it's fair that you pay a higher price, because you'll probably be filing more claims and receiving more insurance payments. That's how risk-based pricing and actuarial rates work.

And the numbers show why. According to data compiled by the Federation of American Scientists, properties that have been flooded multiple times made up 3 percent of NFIP policies but accounted for 35 percent of the claims and 29.8 percent of the damages paid out between 1972 and 2011. Until Biggert-Waters became law, those property owners received a subsidy for living in such a risky location. Now, the small number of properties that are most at risk and have been the biggest financial drain will be required to pay a fairer share.

Dirty little secret: the new maps don't believe in climate change!

Even as FEMA updates its flood maps with the latest and greatest hydrologic, elevation and land-use data, they neglected to factor in the little problem of climate change. The new and improved coastal flood maps don't contemplate the anticipated rise in sea levels. And updated flood maps along rivers and streams do not factor in the predicted increase in storm intensity and related flooding.

Oops.

That means the maps FEMA generated to date in 27 states are, at best, still wrong and still under-predicting the true extent of future flooding.

In June, FEMA released an analysis that estimated just how much more of the country will be at risk of flooding because of climate-driven sea-level rise and extreme weather.

On average, coastal areas analysts expect to see a 55-percent increase in the size of areas prone to flooding, mostly along the Eastern seaboard, the Pacific Northwest and the Great Lakes. Increased flooding is likely even in areas that are projected to be more arid and dry due to the increasingly intense and sudden nature of future storms as the climate warms.

The number of NFIP policy holders along rivers will likely increase by 80 percent by the year 2100 and the number of coastal policies may increase by 60 percent to 130 percent, depending on whether the nation begins to move populations away from the coast or populations remain in place — and in harm's way.

As a requirement of Biggert-Waters, FEMA is convening a Technical Mapping Advisory Council to recommend how best to incorporate climate impacts into future flood maps. That council's recommendations should be released soon and it would be a shock if they do not tell FEMA that climate-change impacts have to be factored into any new maps.

What next?

Biggert-Waters recognizes the latest debate about the wisdom of subsidized flood insurance. It's also shown that the U.S. government has begun to recognize just how much is at risk due to climate change. The move to risk-based pricing of federally backed flood insurance and the elimination of some of the most problematic subsidies has exposed how big of a problem we've made for ourselves. And that includes a $20 billion debt owed by NFIP as of November 2012, which will likely climb to about $30 billion once all claims from Hurricane Sandy are paid out.

The nation still needs to find a way to help people who may be put in economic distress by increased flood-insurance costs. Those people should not be left without a safety net, nor should they be left in place to be flooded again (and again, and again). Those following flood-insurance policy know those individuals need help, and that the risk of flooding is on the rise.

The fact is, subsidized insurance and out-of-date maps led to millions of people moving into flood-prone areas. The National Flood Insurance Program should have helped manage our nation's risks from flooding. If it had been properly designed and implemented, it probably would have helped avoid billions of dollars in past damages, and perhaps been a very useful tool for managing climate risk, as well. Instead it evolved to become a liability.

But now, the United States is starting to wake up to the problems and Biggert-Waters has started a conversation about how to fix them. Hopefully the nation can fix the problems faster than climate-change exposes them.

Moore's most recent Op-Ed was Rethinking National Flood Insurance as Toll Rises. The views expressed are those of the author and do not necessarily reflect the views of the publisher. This article was originally published on LiveScience.com.