Next Steps for Flood Insurance

Residents of Barnegat Bay in New Jersey know a thing or two about flooding. Superstorm Sandy brought record storm surge and tidal flooding into the area in 2012.

It’s a problem a lot of residents of coastal areas have to always worry about in the back of their minds. It’s why they also have to have flood insurance separately from their homeowners policy, which doesn’t cover flooding.

To access that coverage, homeowners depend on the National Flood Insurance Program (NFIP).

The NFIP provides relief for residents in at-risk communities. The program isn’t government funded or subsidized by taxpayer dollars. Instead, it is made up of the premiums of individuals who have the insurance for their property.

The program matters for 22,000 communities nationwide to provide flood insurance in high-risk areas. And flooding happens everywhere, not just in coastal areas.

“That’s the biggest misunderstanding,” said Austin Perez, senior policy representative for the National Association of REALTORS® (NAR). “Virtually every state has had at least one flood disaster declared by the President in the past decade.”

One such community is Darby, Pennsylvania, 100 miles due west of Barnegat Bay. It is inland. A landlocked borough, the only water that residents see is Darby Creek, which flows through the city.

In 1999, its residents suffered through Hurricane Floyd. More than $26 million in aid was provided to these residents.

Baton Rouge, Louisiana is also 100 miles inland, sitting due north of the Gulf of Mexico. In August, 2016, a no-name storm lingered over the state of Louisiana and dropped more rain than Hurricane Katrina.

Most of those residents in Darby and Baton Rouge didn’t have flood insurance and were buoyed by federal aid provided by the Federal Emergency Management Agency (FEMA).

In 2016, there was no major catastrophe like Hurricane Katrina or Sandy.

And yet, 2016 saw the third largest loss year for the NFIP in its nearly 50 year history. More than half of that was because of the inland flooding in Louisiana.

“There are so many other ways to have damaging floods besides coastal hurricanes and storm surge,” Perez said. “There are flash floods, snow melt, or a low pressure rain storm that doesn’t move.”

About the National Flood Insurance Program

The NFIP is a program that helps a lot of people. In 2005, when Hurricane Katrina struck, the average NFIP claim payment was $92,000. From 1996-2016, the average payment was closer to $43,000.

Since standard homeowners insurance doesn’t cover flooding, everyone should consider buying flood insurance.

“A second misconception about flooding is that the federal government will provide enough disaster assistance to make you whole again.  Not true,” Perez said.

Between 2005 and 2014, the average household grant was $5,500 – and even that relatively small amount isn’t available to everyone. Accessing those dollars requires a claim to be filed followed by a FEMA investigation.

“The payout is determined to assist in providing individual assistance to make a home livable, not getting it back to where it was before the flood,” Perez said. “For the vast majority, the most you can expect is an SBA loan, which must paid back plus interest along with the mortgage.”

The NFIP currently generates about $3.5 billion in policyholder premiums, which is available for flood losses in any given year. But what happens in a catastrophic year like 2005, when seven major hurricanes including Katrina, Wilma and Rita struck the Gulf coast and amounted to flood losses approaching $20 billion in a single year?

The Program must borrow from the U.S. Treasury to be able to cover all the claim payments. So far, the program has borrowed $25 billion and is paying $400 million in interest alone each year, which is why it has its share of critics – especially those who think flooding is limited primarily to coastal regions of the country.

Flood Maps and Grandfathering

The NFIP must be reauthorized by Congress every 5 years in order to continue selling flood insurance. That authority is again due to expire at the end of September unless Congress acts to extend it.

While there seems to be widespread, bipartisan recognition in Congress not to shut down the program again, there are two issues that are being discussed as part of a broader reauthorization and reform measure– flood mapping and grandfathering.

When FEMA’s mapping system was developed in the 1980s and 90s, it was state of the art in identifying high risk floodplain better than ever before. It wasn’t until Tropical Storm Allison in 2001 that the NFIP faced its first billion dollar storm, which it was able to absorb within a year or two.

But flooding seems to have intensified over the past decade and is now costing the United States about $10 billion per year according to National Weather Service damage estimates. There is more flooding in the U.S. today than ever before, and the NFIP is struggling to keep up.

So, what needs to change?

First, the mapping system. But modernizing the current system could require an expensive overhaul or at least the adopting of new technologies that can provide far more accurate mapping, even so far as on a building-by-building basis.

In North Carolina, LiDAR (light detection and ranging) technology is being cost effectively used to capture building specific mapping information from airplanes using laser pulses like radar. Without it, FEMA maps only show flood zones, not buildings or their elevation – a key factor in measuring risk. The result is that any home within a high risk zone is presumed to be “high risk,” regardless of elevation. As flood maps become more accurate, it is also important that property owners have some time to adjust to the new risk information.  This is where grandfathering comes in.

Grandfathering enables property owners who built to code to use the previous map to rate the structure when the map is updated with the latest technology and data for the area.  This has the effect of keeping the cost of insurance down while the property owner decides if and to what extent s/he wants to mitigate the risk before the insurance rates reach the levels reflected on the latest map. .

“It provides a transition,” Perez said. “Rather than jumping from one rate to the next, it allows you to pay it over time. It takes some of that surprise out of the cost for flood insurance.”

For example, a home was built to code in 1983. New mapping is conducted and it shows the home is now below the new 100-year flood plain by two feet. Grandfathering would allow that homeowner to use the old rate for a period of time to adjust to new data with annual rate increases so your rate doesn’t just balloon from $2,000 to say $10,000 overnight.

Additionally, some property owners could be overpaying if in fact their property is built higher than the flood plain but they continue to use the grandfathered rate when the rate based on the elevation of the latest map is less.

“Grandfathering provides you with certainty,” Perez said. “And that’s what matters more than the discounted rate for a short period of time.”

“If an individual is paying taxes and fees for a flood map it should be complete and accurate from the outset,” Perez said. “FEMA should be using those advanced methods already. Yes, there may be a considerable upfront cost, but it will be more than paid back over time as fewer properties are built in harm’s way or to elevations so they don’t flood. It’s time to rip off the band aid and move into the 21^st century when it comes to mapping technology.”

Approximately 70% of all NFIP policies come from California, New Jersey, Texas, Florida and Louisiana. According the experts, the cost just to map these 5 states using LiDAR would be around $100 million.

“That’s a very reasonable cost when we’re talking about flood damage in the billions of dollars,” Perez said.  “FEMA’s mapping program is authorized up to $400 million annually, but Congress appropriates less than half of that. So, this would be a modest increase but would dramatically improve the accuracy of the flood mapping for 70% of NFIP policies. For every $1 invested in flood mapping the Association of State Floodplain Managers has shown that it avoids $2 in property damage, which saves the taxpayers money because they spend less on disaster relief to repair properties that would otherwise be built in harm’s way without the maps.”

“It’s not everything, but it’s a really good start.”

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