FEMA May Increase Flood Insurance Rates to Reflect Skyrocketing Risk

DHS: National Flood Insurance Program

By Amy Lupica, ODP Staff Writer

After devastating wildfires in the west, record-breaking storms in the southeast, and skyrocketing fuel prices in Texas, climate change is proving to be shockingly expensive to families in addition to the government. The National Flood Insurance Program is revising its rates for flood coverage on April 1st, and to reflect current risks, and experts say they may need to quadruple. FEMA’s new risk rating system will use a model proposed by the First Street Foundation, which found that by 2050, insurance premiums on flood-risk homes would need to rise sevenfold to cover the costs of annual damage. In the 2020 study by First Street, researchers found that 15 million residences across the country are at risk of flooding within the next 30 years, and most residents may not even know.

Why This Matters: The rising premiums create a conundrum for the Biden administration, which has promised to honor science in federal policymaking but has also pledged to address economic issues facing the working class.  Until now, the federal government has failed to require all states to disclose flood risk to homebuyers and renters, so when floods hit, many don’t have insurance and are left with no recourse to repair their homes or find new ones. Many of those in flood risk homes are economically disadvantaged, and rising insurance premiums may save their homes, but sink their families. Experts hope that rather than pressuring current residents, new premiums will put lead cities and states to halt development or move people out of these dangerous areas.

Price Tag Panic

FEMA warns homeowners not to panic. “FEMA recognizes and shares concerns about flood insurance affordability,” said David I. Maurstad, who runs the flood insurance program for FEMA. “The number of policies that will see large annual increases is a minority of all policyholders.” FEMA also says that premiums won’t increase overnight, but instead over several years. Congress limits premium increases on flood insurance to 18% annually, so any current policyholders will be protected from a larger increase but new homebuyers looking to buy flood insurance would be beholden to the full cost of new premiums.

This isn’t the first time FEMA and the National Flood Insurance Program have tried to raise rates to reflect real risk. In 2012, Congress passed a law doing just that, but in 2014 backed down under public pressure and instead proposed more moderate increases. Another set of new rates was supposed to go into effect in October 2020, but the Trump administration delayed the plan until 2021, out of fear that it would impact his election chances.

Overall, it’s the people living in these floodplains that face the most uncertainty. While researchers hope increased premiums will stop cities from developing on floodplains, studies have shown that even as insurance premiums rise, demand for coastal housing has as well. But while wealthier homeowners with expensive beachside houses are at high risk of flood damage, we also know from experience that when the floodwaters rush in, it’s low-income communities and communities of color that bear the brunt of the damage. Eli Lehrer, president of the R Street Institute says that one way to balance this inequity is by giving insurance subsidies for only those that truly need it. FEMA and the Biden administration will have to come up with a way to balance necessary costs with equity as flooding worsens under climate change, and another potentially record-breaking year of storms approaches.

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