The federal government is revising rates for flood coverage on April 1. New data suggests premiums need to increase sharply for some homes.
WASHINGTON — The cost of federal flood insurance will need to increase significantly in much of the country to meet the growing risks of climate change, new data suggests, creating a political headache for the Biden administration.
By 2050, First Street projected, increased flooding tied to climate change will require a sevenfold increase.
“Any entity claiming that they can provide insight or comparison to the Risk Rating 2.0 initiative, including premium amounts, is misinformed and setting public expectations that are not based in fact,” said David I. Maurstad, who runs the flood insurance program for FEMA.
Still, most experts agree that a closer analysis of flood risks will lead to costlier insurance for owners of high-risk homes than what they already pay. That presents a challenge for President Biden, who has promised to pursue a climate agenda guided by science and data, but has also said he is focused on addressing the economic concerns of middle-class households.
But a big jump in rates may put more pressure on the household budgets of people who already live in vulnerable areas, and also cause home values to fall.
“FEMA recognizes and shares concerns about flood insurance affordability,” Mr. Maurstad said, adding that rates for some people would fall under the new system and stay the same for others. “The number of policies that will see large annual increases is a minority of all policyholders.”
Any jump in costs for current customers would be spread out over years or decades, because Congress prevents FEMA from raising individual homeowners’ premiums by more than 18 percent annually. So even if FEMA’s new system meant that ultimate rates doubled on paper for some people, those who already had coverage would be protected from paying the full increase all at once.
But when a home that’s covered by flood insurance changes owners, the new buyer must pay the full rate right away. So big increases in flood insurance rates could scare off buyers for flood-prone homes, reducing their value or even making them hard to sell.
The agency could theoretically find ways to further blunt those rate increases, according to Roy Wright, who ran the insurance program until 2018. For example, FEMA could decide that insurance premiums should be tied to a structure rather than a homeowner, so that annual limits on price increases would still be in effect even if the house changed owners.
And experience suggests that home values keep increasing in the most desirable coastal areas despite rising insurance costs, Mr. Wright said, because people’s desire to live near water is often unaffected by whether it makes financial sense.
“Is it going to depress property values?” said Mr. Wright, who now heads the Insurance Institute for Business & Home Safety, a research group. “In attractive real estate markets, we haven’t seen that.”
Eli Lehrer, president of the R Street Institute, a research organization in Washington that advocates for market-based policies, said the government could not ignore the financial burden facing people who already live in flood-prone homes.
But rather than shielding those people by keeping insurance rates low, Mr. Lehrer argued that Congress should offer direct subsidies, and only for people with modest incomes who would otherwise struggle to stay in their homes. Everyone else, he said, should face the full cost of the risk they face.
“We’ve been subsidizing people to live in areas that were dangerous when they moved there, and have become more dangerous,” Mr. Lehrer said.
Source: New York Times