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Flood pressure: Climate disasters drown FEMA’s insurance plans


DR-1603 Hurricane Katrina


When a hurricane slams into the Jersey Shore, the Federal Emergency Management Agency (FEMA) gets the call to pick up the pieces. When a tornado lays waste to an Oklahoma community, guess where the phones start ringing? FEMA. And when a foot and a half of rain falls around Boulder, Colo., sending hundreds of homes into the drink? Yep: FEMA again.

But not all FEMA’s shit storms are of the weather variety. When angry ratepayers blew up their elected representatives’ phone lines recently, Congress hauled in a few of our chief emergency managers. The controversy swirled around rate hikes for property owners covered by the National Flood Insurance Program, which FEMA administers.

“Let me just say, all of the harm that has been caused to thousands of people across the country — [who] are calling us, [who] are going to lose their homes, [who] are placed in this position — is just unconscionable,” Rep. Maxine Waters, D-Calif., told the agency’s director, Craig Fugate, during a recent hearing.

But here’s the thing. As NPR’s Christopher Joyce so astutely pointed out, Waters co-sponsored the law that directed FEMA to raise people’s rates. In fact, it bears her name: It’s called the Biggert-Waters Flood Insurance Reform Act.

Here’s the other thing: While Biggert-Waters contained only passing mention of climate change, it was the first real wake-up call for many coastal residents who had been living with the illusion that, if disaster struck, the federal government would always be there to pick up the pieces. As comforting as that might seem, it is becoming less and less realistic as the mercury, and the waters, rise.

Here’s the story of how we got here — and a few thoughts on how we might get out.

The National Flood Insurance Program was created back in 1968, a time when many private insurance companies found flood insurance too risky. To cover the escalating costs of cleaning up after floods — and to encourage communities to adopt smarter floodplain development rules — the feds created their own insurance program, offering discount rates to convince people to buy in. It may have seemed like a good idea at the time, but over the years, the situation became pretty preposterous, as the government’s cut-rate insurance encouraged building, and rebuilding, in vulnerable coastal areas and floodplains.

“If you’re an 18-year-old and you buy a Ferrari, you’re probably not going to be able to get insurance,” says Stephen Ellis with the budget watchdog group Taxpayers for Common Sense. “Even if you’re a 30-year-old driving a Chevy Cavalier, if you get in an accident, your premiums are going to go up. That doesn’t happen with flood insurance. We had properties that flooded 17 or 18 times that were still covered under the federal insurance program.”

The program plodded along for a couple of decades, usually bringing in about as much money as it doled out to rebuild flooded homes and businesses, but never ferreting away enough of a surplus — a “catastrophic reserve,” as they call it in the insurance biz — to cover a really disastrous year. Then came Hurricane Katrina and her oft-forgotten sisters Rita and Wilma in 2005. The insurance program suddenly found itself $18 billion in debt — and with annual revenues of only $3.6 billion, little if any hope of ever getting back into the black.

Here’s a graph of what that looked like, from a study done by the Union of Concerned Scientists:

Click to embiggen.
Click to embiggen.


Years of legislative wrangling resulted in the Biggert-Waters Act, which, among other things, ordered FEMA to stop subsidizing flood insurance for second homes and businesses, and for properties that had been swamped multiple times. There would be some pain, yes, but to soften the blow, the law directed FEMA to spread out the rate increases over four to five years. Congress also asked FEMA to conduct an affordability study to see how the new rules could be administered without leaving people in the poorhouse — or with no house at all.

That study hasn’t materialized, in part because FEMA has been busy with other things: A little over three months after President Obama signed Biggert-Waters into law, Hurricane Sandy slammed into the Eastern Seaboard, sparking a massive clean-up effort and knocking the flood insurance program even further into the red. By the time all the Sandy pay-outs have been settled, the program will owe the U.S. Treasury close to $30 billion.

Biggert-Waters, meanwhile, rolled on. In October, notices went out to roughly 438,000 policyholders announcing that their rates would be going up, in some cases dramatically. (Nationwide, the federal flood insurance program covers 5.5 million properties, one in five of which receives discount rates, meaning the property owner pays only 40-45 percent of the “risk-based” rate a private insurance company would charge.) Thousands more are living in fear of future rate hikes. The other major piece of Biggert-Waters was a directive to FEMA to redraw its outdated floodplain maps. That means many people who live in vulnerable areas, but are currently outside the official flood zones, may be drawn in.

Now, with complaints rolling in from irate property owners, Washington is doing damage control. Sens. Robert Menendez (D-N.J.) and Johnny Isakson (R-Ga.) are pushing a bill that would delay rate hikes for four years. The bill may come up for a vote this week. Others are pushing for even more dramatic backtracking.

But supporters of the Biggert-Waters reforms, who include budget hawks and insurance companies, as well as scientists and environmentalists, are urging lawmakers not to throw the baby out with the rising bathwater.  

“Biggert-Waters was one of the most revolutionary pieces of legislation ever passed by Congress related to insurance,” says Howard Kunreuther, a professor at the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania. For the first time, he explains, the government would be charging property owners insurance premiums based on their level of risk — that is, FEMA would be doing business the way that private insurance companies do.

If the insurance bill reflects the actual level of risk, people are more likely to do things to reduce that risk, like jacking up their homes to keep them above floodwaters. “Biggert-Waters encouraged people to say, ‘I’m going to make my house safer,’” Kunreuther says. That’s good for their homes — and good for the flood insurance program, which is left with the bill when houses are flooded.

To solve the problem of affordability, Kunreuther and his colleagues have proposed a system of vouchers that help people who need help to pay their rising insurance rates — on the condition that they take measures to make their properties less vulnerable. To finance the improvements, the government would offer low-interest loans. And presumably, by the time the work was done, the property owner’s risk, and therefore his or her insurance rates, would have come down substantially.

Great informative article by Greg Hanscom of Grist.   Greg Hanscom is a senior editor at Grist. He tweets about cities, bikes, transportation, policy, and sustainability at @ghanscom.

Is Flood Insurance A Requirement On Your Home?


Federal Emergency Management Agency Elevation Certificates

Federal Emergency Management Agency (FEMA) Elevation Certificates are utilized to determine if a house or some other structure is situated within a Flood Hazard Area (FHA). However, many mortgage companies designate a potentially very costly flood insurance for houses and structures that may not be located within an FHA. In these cases, a Letter of Map Amendment (LOMA) may be filed with the FEMA on a case by case basis. The LOMA is then reviewed by FEMA in order to determine the validity of the claim, and if the construction is found to be outside the FHA, a letter is drafted accordingly. Thus, you are then at liberty to send this letter to your mortgage company in order to eliminate the flood insurance. In most cases, a FEMA Certified Elevation Certificate and/or a LOMA is a pre-ordained requirement for the mortgage company to waiver the flood insurance.

The Requirement for Flood Insurance

In recent years, many homes outside of an FHA have succumbed to damage or even complete destruction due to unparalleled levels of flooding within some areas. Should the home or structure be destroyed through flooding and should the home (or structure) owner not be in the possession of flood insurance, then the mortgage company may be liable to pay for the outstanding loan with no way for recompense.

Hence the reason why now, mortgage companies often insist upon flood insurance on a home or other foundation. Conversely, being in possession of a FEMA Elevation Certificate is often the only way for a homeowner to avoid the added expense of flood insurance premiums being levied on their home.

The Cost of Flood Insurance – How to Determine Risk

Flood insurance may cost upwards of $750.00 per year and can exceed $5000.00 per year depending on the value of your property in addition to the level of flood risk. Determining the level of flood risk can only be achieved through a FEMA Elevation Certificate together with the filing of the LOMA. Almost certainly, where insurance is a requirement by the lender, the cost of the FEMA Elevation Certificate in addition to filing a LOMA is going to be much less than meeting the on-going costs of flood insurance that may in fact not be required. Should you decide to invest in insurance and pay for the FEMA Elevation Certificate and filing of the LOMA, you have an accurate risk assessment, which can of itself save hundreds of dollars every year.

Crooked house

Image by Don McCullough via Flickr
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