United States overhauls flood insurance to address growing climate change risks


* New FEMA system to better reflect flood risk * Lawmakers fear premium spikes for vulnerable homeowners

* Everyone says change is vital to deal with new extreme weather conditions (Add quote from Craig Poulton) By David Sherfinski

Frank Romero hasn’t faced a major flood in years, but he still came close to losing his home – victim of significant insurance premiums for living in a designated risk area. The New Mexico retiree, who still works as a locksmith, racked up a bill of nearly $ 50,000, then filed his policy with the federal government insurance program when faced with a renewal rate over $ 11,000 per year.

“A $ 600 jump in your mortgage is no fun, especially when everything is going to pay for flood insurance – which isn’t going to protect anything,” he told the Thomson Reuters Foundation by phone. “Every month it was a mountain that I had to overcome.” Amid worsening climate-related flooding, the Federal Emergency Management Agency (FEMA) is revising its insurance rules to better reflect the real risks faced by homeowners like Romero.

A redesign makes sense – and is long overdue – given the climate-altered weather conditions. But lawmakers are calling the new regime an “actuarial death spiral” that won’t address long-standing inequalities in the National Flood Insurance Program (NFIP).

“People are going to be shocked at the impact this is going to have on insurance rates,” said US Senator Marco Rubio, a Republican from Florida. The updated system, applied to new policies starting this month, is intended to weigh flood-related factors far beyond the elevation of a house – currently the key metric for determining risk.

The new system also applies to policies that renew on or after April 1, 2022. “(It) eliminates inequalities… where policyholders with lower value homes subsidize the premiums of policyholders with higher value homes and at higher risk, ”David Maurstad, senior executive at NFIP, said in a statement to the Thomson Reuters Foundation.

The new system takes into account the type and frequency of flooding, the proximity of a property to water and the cost of any reconstruction. FEMA estimates that two in three existing policyholders will see an average increase in premiums of up to $ 10 per month and about a quarter will experience immediate decreases.

The premium changes would continue until the new “risk rate” is fully realized. FEMA estimates that about 50% of policies will reach this mark after five years and about 90% will reach it by 10 years. Residents of the United States in high-risk areas with federally guaranteed mortgages are required to purchase flood insurance.

The NFIP covers approximately 5 million policyholders, for total coverage of approximately $ 1.3 trillion. The new system is a step forward – although it does not force people living outside areas designated at risk of flooding, but who may still be at increased risk, to purchase insurance, Nalan Senol said. Cabi, an expert in the field.

Adding more people outside of official flood zones could theoretically help shore up the finances of the NFIP with homeowners who contribute to the system but who may not face claims or payments in the immediate future. FEMA predicts that the new rules will encourage more homeowners to purchase policies because they will have a better understanding of their individual risk.

But “you cannot guarantee that people who buy flood insurance are outside of these firm areas,” said Senol Cabi, head of flood risk research at the Willis Research Network, the branch of research from Willis Towers Watson, a consulting firm. FEMA is making the changes as authorities struggle to keep pace with the rising costs associated with extreme weather events.

In the first nine months of the year, there were 18 “weather and climate disasters,” the National Oceanic and Atmospheric Administration said. Each was associated with losses exceeding $ 1 billion, according to NOAA.

‘DEATH SPIRAL’ Lawmakers representing coastal regions say the new system will have unintended and costly consequences.

US Senator Bill Cassidy of Louisiana said a flood-prone Lake Charles resident with a home outside the official flood zone could see his annual insurance premium drop from around $ 570 now to 5,200 $ under the new plan over the next 10 to 15 years. . The senator said that people who cannot afford insurance and otherwise are not required to purchase it, would simply give up their coverage, putting a system in the red even more.

Federal assistance may be available for damage not covered by insurance – but people in high-risk areas who are uninsured and receive assistance after a flood may be required to purchase insurance to receive assistance in the future, according to FEMA. “FEMA is not forthright about these costs in the (long term), and that’s what’s going to set up our actuarial death spiral,” Cassidy told reporters last month.

Over the past 50 years, FEMA has collected approximately $ 60 billion in NFIP premiums and paid $ 96 billion in fees. Maurstad said the changes are “part of transforming the NFIP so that it is sustainable into the next decade and for generations to come.”

Hurt the poor Whatever the disagreements, everyone concedes that change is essential to keep pace with worsening extreme weather conditions, update flood maps to more accurately reflect current risks and deal with the consequences the effects of climate change on many of the poorest Americans.

U.S. Representative Carolyn Maloney, a Democrat from New York, said homes where residents drowned in flooding from Hurricane Ida were located in FEMA map areas that posed minimal risk. “They don’t take storm sewer systems into account,” FEMA administrator Deanne Criswell admitted to Maloney.

Authorities have been scrambling to find ways to reduce risks – including buying risky homes – that don’t bypass low-income residents who are vulnerable to increased flooding. Craig Poulton, CEO of Poulton Associates, which administers the Natural Catastrophe Insurance Program, a private alternative to NFIP, suggested the government offer options to homeowners facing potential buyouts.

These could include allowing them to sell to a private buyer at a higher price who agrees to make the property more resistant to flooding. He also suggested capping compensation amounts at $ 1.5 million to $ 2 million, which could prevent the super-rich from taking too much advantage of the current system of eminent estates based largely on the payment of a “fair market value”.

Just making sure those who buy flood insurance pay a realistic price is also crucial to ensure there is motivation to adapt to growing threats, he said. “You just have to force people to pay a rate… where there is some correlation with risk. This invisible hand (of the market) has tremendous healing power wherever it goes,” Poulton added.

Romero, of New Mexico, said those who can least afford insurance to cover the extra risk are often those lost in the reshuffle. “There are just a lot of poor people (who) don’t understand all of this and they are hurt,” he said.

(“Report by David Sherfinski. Edited by Lyndsay Griffiths and Laurie Goering. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, which covers the lives of people around the world who struggle to live freely or fairly. Visit http: / /news.trust.org)

(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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