September 5, 2024, The Wall Street Journal – “If your driver’s license says Florida, you live in a flood zone and you’d better buy flood insurance,” said Lisa Miller, an insurance adviser based in the state and former regulator. “It’s tragic that so many people aren’t covered. (Original story location: https://www.wsj.com/personal-finance/flood-insurance-homeowners-risk-befb864e?st=qvj09m6jic1vc2h&reflink=desktopwebshare_permalink)
Faun James was at work in a Pennsylvania hospital last month when a storm flooded her town. Unable to drive in the surging water, she watched the devastation unfold from her home’s security cameras.
Her possessions—and others’—were floating down her driveway.
“My husband’s John Deere lawn mower…a canoe that didn’t belong to me,” said James, who is also the town’s mayor.
The torrential rains from tropical storm Debby poured into her basement, ruining wedding and family photos. Like nearly all her neighbors in Westfield, a town of 1,200, James has no flood insurance.
Growing swaths of the U.S. that have never before been flooded are now in danger of being swamped as climate change fuels more intense rainfalls.
Yet the government’s official flood maps haven’t been updated to reflect that rainfall risk, lulling some homeowners into a false sense of security.
“We were told we don’t live in the flood plain, so why would we need insurance?” said James. “My husband’s lived here for 60 years and never had any flooding.”
While the risk of flooding has increased in places such as Westfield along Pennsylvania’s northern border, the total number of homeowners with flood insurance has declined. One explanation is higher costs for federal coverage layered on top of higher premiums for regular homeowners insurance.
The Federal Emergency Management Agency’s official flood maps show eight million properties in high-risk flood zones, where the estimated risk of flooding is 1% a year or 26% over the typical 30-year life of a mortgage. The actual number of homes facing such risk is more than double that, or 18 million, according to research firm First Street Foundation.
Much of the difference is because FEMA zones don’t reflect the risk of heavy rainfall, said Jeremy Porter, First Street’s head of climate implications research.
Even outside those high-risk zones, most households are vulnerable to flooding, the country’s most common—and costliest—natural disaster. First Street’s simulation of Debby found 78% of the flooded properties were outside those zones.
Many of the FEMA flood maps for communities are out of date, with more than one in five at least a decade old, a study last year by mortgage firm Fannie Mae found.
A FEMA spokeswoman said the agency coordinates with local partners to continually identify maps that need to be updated with the latest data. She said a map’s age doesn’t necessarily reflect its accuracy.
Homeowners caught off guard
Around a third of the claims for federal flood insurance from 2013 through 2023 came from properties outside the high-risk flood zones, according to FEMA.
“Where it can rain, it can flood,” said an agency spokeswoman.
That message isn’t being heard. The National Flood Insurance Program, which provides the lion’s share of flood coverage, had 4.65 million policies at the end of July, down 1.4% from the previous year and a million fewer than the peak of 5.7 million policies in 2009.
The vast majority of Americans don’t have separate flood insurance, even though standard home-insurance policies don’t cover that risk.
That is true even in flood-prone regions. Six states—Texas, Florida, New Jersey, New York, Louisiana and North Carolina—between them account for 86% of the $42 billion in claims paid by the program since 2010, according to FEMA. In four of those states, the number of policies fell in the year through July. Only Florida and New York registered small upticks.
In Florida, which has more policies than any other state, only 12% of properties have federal policies, according to insurer Neptune Flood. In four counties—Gadsden, Hamilton, Liberty and Jackson—less than 1% of homes had NFIP policies at the end of July, according to reinsurer Gallagher Re.
“If your driver’s license says Florida, you live in a flood zone and you’d better buy flood insurance,” said Lisa Miller, an insurance adviser based in the state and former regulator. “It’s tragic that so many people aren’t covered.”
A taxpayer burden
The nationwide flood-insurance shortfall means the cost of rebuilding often falls on taxpayers—via disaster relief—or inundated homeowners themselves.
The federal flood-insurance program’s payouts for Debby likely won’t top $300 million, according to Moody’s RMS, a unit of the rating firm. First Street estimates the uninsured flood damage will be far higher: $7.6 billion to $12.6 billion.
Some lawmakers blame an overhaul of the flood insurance program’s pricing, designed to match rates more closely to risk, for the decline in policies. The changes resulted in some policyholders facing huge premium increases.
Ross Miller of New Orleans said his home is “near the Mississippi but it’s never flooded.” Only one square foot of the property is in a flood zone, he said. “We didn’t even get water in our street during [the 2005 Hurricane] Katrina.”
Despite that, he said his flood-insurance cost will eventually go from around $700 in 2021 to $3,641, once rates reach their new level. The law doesn’t allow increases of more than 18% a year.
Jeff Jackson, interim senior executive of the National Flood Insurance Program, said the number of policies was falling before the new rates kicked in, and that downward trend has leveled off.
Attempts to reform the 56-year-old federal flood-insurance program have been hobbled by political disagreements. The program lapses at the end of this month, and Congress is expected to extend it only for a few months at a time, as it has in recent years.
Lawmakers have failed to increase the program’s $250,000 payout cap for damage to buildings since 1994; the average cost of rebuilding a home has since more than doubled, according to data firm Verisk Analytics.
Private flood insurers can offer higher coverage limits, but the market isn’t growing fast enough to compensate for the falloff in federal policies, according to Trevor Burgess, chief executive of Neptune.
In total, Burgess estimates there are less than half a million private policies.
In Westfield, Pa., James said cost was a big reason so many people in the town lacked coverage.
“It’s so expensive and our income here’s not that great,” she said. “So now we’re praying that FEMA helps us.”
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