The Flood Insurance Dilemma

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Janice Kaspersen - Stormwater Editor
Here’s a quick quiz: which of the 50 states has the highest hidden flood risk? (Scroll down for the answer.)

You might guess Florida—I did—but that low-lying coastal state, in fact, comes in second. And although Florida does have the greatest overall flood risk, hidden risk is something different: it applies to the properties that lie outside FEMA’s designated Special Flood Hazard Areas that still have a moderate or high risk of flooding. This is a significant distinction because properties within the SFHAs must have flood insurance to receive federally backed mortgages. People with property outside the SFHAs might believe, falsely, that they have little or no risk, putting them in unexpected financial peril during the next major storm or hurricane.

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So, which state has the highest hidden risk? Arizona. The financial analytics firm CoreLogic has ranked states and determined 68% of homes in Arizona have hidden flood risk, followed by 54% in Florida, 49% for Louisiana, and surprisingly, 40% in North Dakota. In Arizona’s case, it’s the heavily developed Salt River floodplain near Phoenix that accounts for much of the problem.

Even though many of the homeowners whose properties fall into this hidden risk category might want flood insurance, if they understood the threat, their ability to get it in the future is far from certain. On September 8, Congress voted to extend the National Flood Insurance Program for three months to December 8, 2017—that’s this coming Friday. Before that extension, the program was set to expire on September 30. Policies already in place would continue, but no new policies could have been written, which would have prevented many home sales—those that depended on a federally backed mortgage—from going through. The National Association of Realtors, among others, has been pushing hard for the program to be reauthorized.

But the National Flood Insurance Program is deeply in debt—even more so since a series of devastating hurricanes—and its long-term fate is still up in the air. In November, the House of Representatives passed the 21st Century Flood Reform Act, an attempt to reauthorize the program and make it more financially stable. It still needs to be reconciled in the Senate, but it calls for reforms such as denying coverage to properties with repeated flooding.

There’s another way, too, to look at mandatory insurance for at-risk properties. As this article argues, the requirement for homes within the SFHAs to buy insurance is pricing people right out of the market, especially in working-class neighborhoods, and preventing economic recovery in those areas. Flood insurance premiums have been rising by 25% or more per year in some places, and properties in an SFHA must maintain insurance until the mortgage is paid off. “Community leaders say if premiums are allowed to surge unabated, housing markets could crater and take down local economies with them,” according to the article. “Owners will find themselves stuck with properties they can neither sell nor afford to keep. Landlords will be forced to pass the costs of surging premiums on to their tenants.” In one city profiled in the article, annual premiums are running as high as $30,000. The Reform Act passed by the House last month would cap premiums at $10,000—which is still more than many homeowners can afford.

And there is some question about the accuracy of FEMA’s flood maps, even as the agency has been working to update them. A recent study by Rice University found that FEMA’s 100-year floodplain maps failed to capture 75% of flood damages from five serious floods in the Houston area, none of which reached the threshold of a 100-year event. (The study was conducted before Hurricane Harvey hit the area.) An article coming up in the March/April issue of Stormwater magazine will look at that study and the various hydrologic models to help determine flood risk. SW_bug_web

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  1. The FIRM maps in Palm Beach County, Florida were recently updated, newly putting my house in a flood zone. I believed that my property should not have been added to the flood prone areas. My thought was it was just a ploy by the National Flood Insurance Program to bring in a larger group of insured to increase premium payments to decrease their deficit. I am surprised that they are no longer writing new policies. After the 50″ rainfall in the Houston area, I realized an exceedance of the 100-year rainfall could happen at any time and was planning to buy flood insurance. I see that may not be an option now.

  2. Here is the situation where my house is located to add to your theory of gathering more people to pay for others living in harms way. The house is on five acres with an AE Zone along one edge covering well less than ten percent of the property and the zone is over 300 feet away from the house along with the fact that the first floor elevation is six feet above the regulatory elevation still requires insurance coverage when there is a mortgage from a lending institution with federal insurance at the institution. When will one owning that house collect?

    1. What you should do is apply for a LOMA (Letter of Map Amendment). Hire a surveyor to establish the lowest adjacent grade and finished floor elevation of your home in NAVD 88, to show that both are above the 100-year flood elevation. FEMA will remove your structure from the floodplain by letter. This should eliminate any requirement for flood insurance for lending purposes. Much chepaer than paying annual insurance.

    2. Well, maybe sooner than you think, Andy — though I truly hope not. Two years ago, a tropical storm passed thru our area, whch is about 15 miles west of New Orleans. Another community in Laplace, LA — about 15 miles west of us, was flooded by the storm and resulting in the flooding of a few thousand homes in an area that had NEVER flooded before and had absolutely NO REQUIREMENT for flood insurance, based on history of the area, elevations, etc. Without FEMA, the families in this area would have lost everything. The people who live in Laplace are mostly oil, gas & petrochemical refinery workers. (Southeast Louisiana bears the brunt of a huge portion of dirty plants that routinely emit air and water pollutants, extensively with impunity, despite regulations to the contrary.) If these people simply pick up and moved away, who do you think would make your heating oil, gasoline, fertilizer, etc.? Should we just fold up the plants, pack up the workers and move them to your backyard? I’m pretty sure you wouldn’t want that even if it were possible,m which it isn’t. So get real, and stop fantasizing that disasters are a manageable, localized problem — they aren’t!

  3. I have a property within the FEMA -SFHA. My house is in 29 Palms, CA. The hottest, driest climate and zone in all U.S. I’m on an “outwash plain/bajada/floodplain. We receive less than 5 inches of rain per year. Yes, this is within a potential flash flood zone – that’s what we have in the Colorado Desert ! (who in the North America doesn’t get some sort of sudden storm events). My house is built on a pad which is raised to code, and has sufficient berms surrounding the home. My FEMA Flood insurance has gone up 25% every year for the last 6 years. At $1100 (to replace a house that cost $32,500 in ’95, now valued at $105k), this is beyond my ability (and conscience ) to pay. This time I went to local broker and got covered by The Hartford for half of the FEMA Flood program cost. FEMA is making the rest of the country PAY for their losses for those in major flood hazard zones. I say tell those who have been repeatedly flooded to MOVE OUT.!!! Why do we continue to allow humans to live in harms way?

    1. Christopher — I understand your frustration and feeings that you are being treated unfairly. However, every time there’s a disaster, people in otherparts of the country ask this same question: “Why do people live there?” That’s a simple question, but there is no simple answer. Where I live (near New Orleans), it’s a common refrain, but by no means a legitimate one. There is virtually NOWHERE in the country — or anywhere for that matter — that is immune to natural or man-made disasters! Let me ask you: Are people stupid to live in LA and SFO b/c these major population centers lie on major geological faults? Are the farmers in Iowa stupid to remain on their farms when their crops are wiped out by periodic flooding? Are the people in Gatlinburg, TN stupid to rebuild their burned out homes that were ravaged by totally unpredictable wildfires last year? What about all those dummies in Ventura, CA — which is on fire as we speak — and the ones along the eastern seaboard along the New Jersey coast who had their homed and businesses destroyed by SS Sandy? And, even if we accept your premise that people should not live in these — and MANY other — disaster prone areas, exactly where would you have them move, and how would you guarantee their safety, especially given today’s radically changing weather patterns?

      So pls stop trying to scapegoat others for your dilemma, and focus on dealing with your own issues. Hey, maybe you should move elsewhere where the insurnace rates are more affordable. The rates here in New Orleans are only about half of what you’re paying!

  4. What we need is national HAZARD – not FLOOD – insurance that everyone pays into with no exceptions! There is no area of the country that is not suceptible to something, whether natural or manmade disasters. This seems a no brainer, but for some reason this tribal “us vs. them’ mentality has been allowed to prevail over common sense. If everybody pays into it, the per capita costs can be very low, even if they are adjusted for each area’s statistical risk factors, including variances in rebuilding costs based on regional economic realities (e.g., it might cost more to rebuild after a California earthquake than the cost to recover from flooding in Iowa. These details can be worked out, but the basic idea of national hazard insurance has to be the foundataion for it to work.

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