Hundreds of thousands of Americans have dropped their flood insurance through the National Flood Insurance Program, or NFIP, since last October, E&E News found in a review of federal records. The sharp drop in coverage comes after the Federal Emergency Management Agency overhauled the program’s insurance pricing system, a move that was intended to make premiums more accurately reflect a property’s flood risk.
When the agency reviewed the NFIP last year, it found inequities in the way insurance premiums are priced. Homes in less risky areas of flood zones paid more for their premiums and shouldered a greater burden of flood risk costs. The overhaul of the system aimed to address these inequalities by adjusting premium rates according to the level of risk.
“[W]We have a responsibility to make sure we have actuarially reliable, fair and equitable rates. And that’s what’s driving the change,” NFIP Senior Executive Director David Maurstad told CNBC last year.
While that restructuring caused some homeowners to see their insurance premiums drop, others saw their rates jump to more than $4,000 a year from just about $700, according to Jeremy Porter, principal researcher at the First Street Foundation, a nonprofit research group. which quantifies and communicates climate risks.
E&E News found that the total number of NFIP policies declined nearly 9 percent, from 4.96 million to 4.54 million, between the end of September 2021 and the end of June 2022.
The declines in coverage come at a time when it’s more important than ever for people living in flood zones to buy insurance. FEMA estimates that climate change will cause the size of high-risk flood areas to increase by 55 percent along the nation’s coasts and up to 45 percent along major river systems by the end of the century.
Sara Prale, an associate professor of political science at Syracuse University, said that while the preliminary numbers of lapsed policies are troubling, they are part of a broader problem that stretches back even before the NFIP restructuring. Americans living in flood-prone areas tend not to buy insurance, making premiums higher for those who do because the insurance pool is smaller.
This problem can be partially solved through enforcement: Although federal law requires homeowners in high-risk areas to pay off federally-insured mortgages in order to purchase flood insurance, many choose not to do so or drop their policies after several years.
But the bigger problem, she says, is rooted in FEMA’s flood maps, which depict current levels of disaster risk using data from the past instead of projections for the future.
“You might buy a house right outside the flood zone thinking you’re safe, but you’ll have that mortgage for 30 years,” she said. “And probably in 30 years your house will be in a flood zone.”
The solution, Pralle believes, is to adjust FEMA’s flood maps to cover more people, thereby expanding the insurance pool and lowering premiums for everyone.
But requiring more people to buy flood insurance is a politically unpopular policy that risks placing an undue burden on low-income homeowners already struggling to pay their mortgages. Recognizing that, Pralle said a fair national flood insurance program would offer subsidies to low-income families to incentivize them to seek coverage.
After all, she said, it’s in everyone’s best interest to have flood insurance. Individuals without coverage often must rely on FEMA disaster assistance funds, which are typically only a few thousand dollars, as opposed to up to $250,000 that NFIP policyholders can receive for structural damage to a single-family home.
“If you look at the results, people with insurance do much better after disasters,” she said. The goal should be to ensure that low-income homeowners have access to these better outcomes. “Subsidize those premiums so they have that security and don’t lose everything,” Prale said. “I don’t think the solution is to just not make people buy insurance.”