Many homeowners looking for a new flood insurance policy woke up to a harsh reality Friday. New standards for the federal program took effect, and the rules will raise rates on many Tampa Bay area homes — sometimes by huge amounts. The Federal Emergency Management Agency designed the changes in hopes of better reflecting real-world risk and to bring rates more in line with the actual cost of the insurance. But that doesn’t make the higher prices any easier to swallow for the average homeowner.
The federal flood insurance program was solvent from 1986 to 2004, with more premiums coming in than were paid out. Then along came Hurricane Katrina (2005), Superstorm Sandy (2012) and Hurricane Harvey (2017), the three most expensive storms in the flood insurance program’s history. They cost $34 billion in payouts and pushed the program into dire financial straits.
For its part, Florida has been a donor state. That is, the premiums paid in by Floridians outstrip the benefits paid out after floods. But actuaries care about more than just past performance; Florida has more than $250 billion worth of at risk properties in the Miami and Tampa Bay areas alone, according to the Insurance Information Institute. Florida is home to six of the 10 most at-risk metro areas in the country, based on the cost of rebuilding single family and multifamily homes. It takes just one bad hurricane to upend Florida’s donor status.
Next, this is not just a problem for rich homeowners and their multimillion-dollar beachfront mansions. In fact, the federal program has a cap of $250,000 for repairing or replacing a home. That’s hardly the threshold for “rich” when it comes to Tampa Bay home prices. And floods occur not only on the beaches but in gulleys, by rivers and in low-lying areas where many owners of modest means have their homes.
Climate change and sea level rise are also changing the calculus. More homes are going to be vulnerable to flooding as the seas rise, and more ferocious hurricanes spawned by warmer waters increase the danger of storm surge. The flooding problem is going to get worse, not better.
While Floridians are facing some of the largest policy increases under the new changes, this is not unique to the Sunshine State. Look at the constant flooding in towns along the Mississippi River. Or the massive floods in New York City a month ago from rainstorms spawned by the remnants of Hurricane Ida. And here’s an irony to keep in mind: New Orleans, while it suffered severe power outages, was saved from deadly floods during Ida because of the $14.5 billion spent after Hurricane Katrina on projects designed to enhance protection from storm surge and flooding. New Orleans was saved from most of the flooding, but New York — 1,100 miles away — got swamped.
This is a national problem, one that Congress can and should solve. We certainly don’t have all the answers. But we do have questions that can help move the conversation forward as the nation struggles to find solutions.
♦ Does the federal insurance need to be completely actuarially sound? This is a policy question. People routinely receive more in Social Security than they pay in, but few people complain because the economy benefits from the increased spending and few people want more seniors to slip into poverty. Is there a benefit to subsidizing catastrophic home insurance for Americans? Maybe not, but let’s explore the question.
♦ Should Congress make it easier for private insurers to enter the market? Private insurers are happy to offer flood insurance to some homeowners if they have adequate information to assess the risk and to price policies accordingly. Such a marketplace could determine the true cost of flood insurance. That, in turn, could drive some policy questions about where we should and shouldn’t build more homes. And as climate change makes some areas less insurable, the private insurance market could help determine from where we should retreat or at least not rebuild after a catastrophe.
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♦ What is the best approach to dealing with homes and other structures that repeatedly flood, dubbed “repetitive loss properties”? A 2020 report from the Office of the Inspector General concluded that FEMA was not effectively administering a program to reduce damage to severe repetitive lost properties. Historically, the 1 percent of properties that flood repeatedly account for 25-30 percent of the flood claims, according to a Pew Charitable Trusts report from 2016. As of 2014, those properties had cost the program $12.5 billion, more than half of the program’s current $20.5 billion debt.
♦ The United States has faced floods, hurricanes and wildfires this year. No major earthquakes yet, but it’s only October. Those perils are not spread equally across the nation, but each one can cause massive destruction. Should Congress consider separating out such massive catastrophes for an umbrella federal insurance program and let private insurers underwrite only individual risks? In other words, a Florida homeowner would have a much-cheaper policy that would cover only routine perils such as fire and theft but would have a federally insured catastrophic policy for hurricane risks — both wind and water.
That same catastrophic policy would be in a pool to include earthquakes for people who live near fault lines and for owners of property susceptible to wildfires or floods in other states. That large pool would spread the risk of any one catastrophe among a greater number of policy holders, and it would invite buy-in by including more regions of the country. For instance, even in a non-hurricane year, rates for Floridians might go up a bit to cover a huge wildfire in California or a flood in New York. But it would work the other way, too, because the risk pool would be large and diverse.
The changes in the federal flood insurance program are a shock to many homeowners. But they force us to think through options that could provide affordable insurance in a sustainable system. The problem will not go away on its own.
Know your flood risk
Find out your flood risk at myfloodrisk.org. If you already have a policy, rates can’t go up by more than 18 percent a year, but that’s still a lot. Some free portals offer help to comparison shop, such as myfloodinsurance.com. Find out what your new rates will be and what your options are.
Editorials are the institutional voice of the Tampa Bay Times. The members of the Editorial Board are Editor of Editorials Graham Brink, Sherri Day, Sebastian Dortch, John Hill, Jim Verhulst and Chairman and CEO Paul Tash. Follow @TBTimes_Opinion on Twitter for more opinion news.