Flood insurance costs rise in areas once considered less risky

WASHINGTON (AP) – In the past year, the town of Lake Charles in southwest Louisiana has suffered two hurricanes, intense rainfall that sent water to the streets and a deep frost who burst pipes.

Still, Tommy Eastman could eventually drop coverage for his four-bedroom home – which has so far escaped damage – as the cost of his flood insurance increases.

“Once it starts going over $ 1,000, I’m going to start thinking, ‘Well, what am I doing? “Said Eastman, a real estate agent whose annual policy is expected to drop from $ 600 to $ 2,500 over the next several years.

As part of a revamped federal flood insurance program rolled out this fall, millions of homeowners are subject to rate hikes that officials say more accurately reflect a property’s risk. That includes the vast majority of the 1.7 million homeowners with relatively cheap policies in areas that federal officials previously considered low or moderate risk – and where coverage is voluntary.

The redesign aims in part to make development in risk areas more expensive. But some fear that rising prices will make it more difficult to convince homeowners to voluntarily buy or maintain flood coverage, especially in middle-class and working-class areas.

“We don’t have condominium skyscrapers, we don’t have white sand beaches. It’s an active coast in our state, ”said Jim Donelon, Louisiana Insurance Commissioner.

The Federal Emergency Management Agency says its new insurance program takes into account characteristics of individual properties, such as their proximity to water, cost of reconstruction, and possible exposure to several types of flood risk. In many parts of the country, these risks are increasing as climate change increases the strength of hurricanes and the intensity of torrential rains.

The program – Risk Rating 2.0 – will result in higher prices for about three-quarters of the 4.9 million federal flood insurance policies, and lower prices for the rest. Voluntary policyholders in single-family homes will be particularly affected, with an estimated increase of 90%, according to FEMA. The agency said it plans to collect 50% more bonuses under the new program over time.

“We learned that the old way of looking at risk had many loopholes, which underestimated the risk of flooding a property and communicated a false sense of security,” said David Maurstad, senior executive at National. Flood Insurance Program.

Despite the identification of a greater risk of flooding across the country, the new system does not change who is required to purchase coverage. In areas FEMA deems most risky – known as the 100-year flood zone – flood insurance is required for government guaranteed mortgages and many banks also require it for mortgages in the areas. at high risk. FEMA said the flood maps are not intended to predict where flooding may occur, but indicate where coverage is required and help communities make construction decisions.

In recent years, homeowners living in places where coverage is not required have suffered losses of several billion dollars. Between 2017 and 2019, nearly 40% of flood claims FEMA received were for properties outside of areas where insurance is required, an agency representative told Congress last year.

Many properties outside of flood-prone areas face a risk “that has always existed but has never been identified,” said Matthew Eby, executive director of the First Street Foundation, a research company that produces detailed maps of the land. flood risk.

First Street estimates that 14.6 million properties in the United States are at substantial risk of flooding, far more than the number of flood policies insured by the federal government. A Government Accountability Office report this year recommended that the federal government update the rules on who is required to obtain coverage to protect more high-risk homes from flooding. A separate GAO report found that FEMA flood maps do not reflect the latest science on the climate or major flood risks such as heavy rains.

FEMA said it had not investigated how the rate changes would affect voluntary purchase of flood insurance, and the agency did not publicly disclose details of how high premiums will climb in the past. – beyond the first year. A Congressional Research Service report said the 2.0 risk rating will more accurately signal a home’s risk of flooding, but the higher prices “may mean that insurance for some properties is considered unaffordable.”

Rising rates and more people opting for coverage are also important to the financial health of FEMA’s flood insurance program, which is in debt of $ 20.5 billion. Since its inception in 1968, many insurance experts claim that the program has heavily subsidized flood insurance by failing to charge rates that properly reflect a home’s risk. The federal government underwrites most flood insurance policies in the United States

For new policyholders, the new FEMA rates went into effect in October. For existing policyholders, the new rates come into effect in April. With rate hikes capped at 18% per year, it will take years for some to reach their new rates. Policyholders can call their insurers to find out about changes in their rates. Unlike before when large groups of policies have seen increases, the Risk Score 2.0 will adjust the prices individually.

Higher rates will make flood risks clearer and ideally encourage more homeowners to purchase insurance in areas where coverage is voluntary, said Joel Scata, an attorney at the Natural Resources Defense Council, an advocacy group. environment. He said Congress should act to address affordability for low-income families.

Lake Charles resident Aric Pohorelsky contemplates another scenario. He pays $ 517 a year for flood insurance on a 3,700 square foot home, but said the same policy would cost $ 5,000 for a new owner.

“If people are leaving in large numbers… I don’t think it will be because of the 2.0 risk rating,” he said. “I think it will be just because of the stress of major hurricanes.”

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