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Climate Change Meets Federal Flood Insurance

Two decades ago, I bought a home in the suburbs of Houston, Texas, and was told I didn’t need flood insurance since my home was several feet above the 100-year flood line. I took out a policy anyway since paying several hundred dollars a year to protect well over a quarter-million dollars of investment seemed like a great deal. I never had to use my flood insurance, but floodwater did reach the bottom of my foundation slab during one incident. However, the Houston home was not my first encounter with flood insurance.

Several years before living in Houston, I watched a documentary on east-coast storms and their impact on coastal communities. Near the show’s end, the narrator interviewed a woman whose oceanfront home was destroyed three times by flooding from tropical storms. When asked why she still lived there, she replied, “I just couldn’t bear to live anywhere else.” She didn’t add how federal flood insurance was paying for her to rebuild each time.

Homeowner and renter insurance policies don’t cover damage from flooding. Evidently, the private insurance market considers such coverage as unprofitable. Federal flood insurance fills this gap in the insurance market. FEMA manages the program, which “covers direct physical losses from floods and losses resulting from flood related erosion caused by waves or currents of water exceeding anticipated cyclical levels and accompanied by a severe storm, flash flood, abnormal tide surge or a similar situation that results in flooding.”

The program’s original design was a classic insurance model where premiums funded payouts, and from 1978 to 2004 the model worked. But since 2004, climate change has outpaced the program, and by 2017 the National Flood Insurance Program was $25 billion in the hole and required a congressional bailout.

Red State Subsidies and Ecological Damage

National Flood Insurance has turned into a welfare program where wealthy counties and vacation homeowners in the Gulf Coast states are the primary beneficiaries. If you are thinking, “Aren’t these the same states protesting against federal interference and government spending for food and housing assistance,” you are correct. All Americans pay taxes to support the flood insurance subsidy for the benefit of limited few.

For all of its original good intentions, the National Flood Insurance Program has not kept up with the times, and clearly, climate change didn’t enter into its long-term thinking. In 2005 Hurricane Katrina and other storms generated $20 billion of FEMA debt as massive payouts depleted the program’s funds.

The National Flood Insurance Program was flawed from inception by encouraging building and development in flood plains, a guarantee that private insurers found too risky. Betting against a 20-foot storm surge or devastating flooding from water-laden tropical storms is a losing proposition.

Also overlooked in this insurance program was the ecological damage caused by building on flood plains. River basins and coastal zones provide erosion control, buffers to flooding, water purification, and habitats supporting a diverse array of wildlife. As we build into these environmentally sensitive areas, we do so at our own peril. It’s ironic how flood insurance encourages building on floodplains, which in turn creates more intense flooding.

Federal flood insurance can no longer stand on its own, and the winds of change are blowing in the direction of higher premiums.

Should I Pay to Insure Your Home, or Should You Pay?

The dilemma is simple to understand. Should all Americans pay to insure the few who choose to live in high-risk flood zones, or should individual homeowners be responsible for covering their own costs? FEMA has decided homeowners should pay their way and the agency is incorporating climate change risk into flood insurance premiums starting next year.

Next April, flood insurance premiums for most policyholders will start rising by 18 percent each year, and some owners of high-end properties will see increases of up to $14,000 next year. The cost increases will squeeze more than just coastal residents. Homeowners in mid-continent states, living where creeks and rivers regularly flood, will also feel the pinch. Whether you believe in climate change or not has no bearing on the rising premiums you may pay.

These changes sound inherently fair and also discourage building in ecologically sensitive areas, thus protecting the environment and helping us adapt to a warmer Earth.

But the expected political fallout is already animating vested interest on both ends of the political spectrum as their constituents protest the end of this particular free-lunch program. The wealthy and middle class stand to lose the most since our poorest homeowners couldn’t even afford the moderate premiums of the past. But the wealthy and middle class are precisely the voters politicians don’t want to piss off.

Perhaps congress will choke off FEMA’s recognition of climate change and its attempt to fairly distribute the cost of flood insurance. In that case, perhaps the American taxpayer would like to chip in on my earthquake insurance.

Climate Change: Increasing the Frequency and Intensity of Flooding (by WM House; Medium)

A Retreat From Climate Change (by WM House; Medium)