Frank Romero hasn't faced a major flood in years but he nearly lost his home all the same - a victim of substantial insurance premiums for living in a designated risk area.
The New Mexico retiree, who still works as a locksmith, racked up a bill of almost $50,000 then junked his policy with the federal government’s insurance program when he faced a renewal rate of more than $11,000 a year.
“A $600 jump in your mortgage is no fun, especially when it’s all going to pay the flood insurance - which is not going to protect anything,” he told the Thomson Reuters Foundation by phone. “Every month it was a mountain that I had to overcome.”
Amid worsening climate-fueled floods, the Federal Emergency Management Agency (FEMA) is overhauling its insurance rules to better reflect the real risks facing homeowners like Romero.
An overhaul makes sense - and is long overdue - given climate-shifted weather patterns.
But lawmakers call the new scheme an “actuarial death spiral” that won't fix long-standing inequities in the National Flood Insurance Program (NFIP).
“People are going to be shocked at the impact it’s going to have on insurance rates,” said U.S. Sen. Marco Rubio, a Florida Republican.
The updated system, applied to new policies from this month, is intended to weigh flood-related factors well beyond a home’s elevation – currently the key metric for determining risk.
The new system also applies to policies that renew on or after April 1, 2022.
"(It) eliminates inequities ... where policyholders with lower-value homes are subsidizing premiums of policyholders with higher-value homes and higher risk," David Maurstad, senior executive of the NFIP, said in a statement to the Thomson Reuters Foundation.
The new system factors in the type and frequency of floods, a property's proximity to water and the cost of any rebuild.
FEMA estimates two in three existing policy holders will see an average premium increase of up to $10 a month and about a quarter will see immediate decreases.
Premium changes would continue until the new "risk rate" is fully realized. FEMA estimates that about 50% of policies will hit that mark after five years and about 90% will reach it at 10 years.
U.S. residents in high-risk areas with federally-backed mortgages are required to carry flood insurance.
The NFIP covers about 5 million policy holders, collectively totaling about $1.3 trillion in coverage.
The new system is a step forward – though it fails to force people living outside designated flood threat zones, but who could still be at heightened risk, to buy insurance, said Nalan Senol Cabi, an expert in the field.
Adding more people outside of official flood zones could theoretically help shore up the NFIP's finances with homeowners who pay into the system but who might not face claims or payouts in the immediate future.
FEMA anticipates that the new rules will spur more property owners to buy policies since they'll have a better understanding of their individual risk.
But "you can’t guarantee people purchasing flood insurance who are located outside of these firm zones," said Senol Cabi, head of flood risks research with the Willis Research Network, the research arm of Willis Towers Watson, an advisory firm.
FEMA is making the changes as officials struggle to keep pace with rising costs associated with extreme weather events.
In the first nine months of the year, there were 18 U.S. “weather and climate disaster events”, said the National Oceanic and Atmospheric Administration.
Each one was associated with losses exceeding $1 billion, according to NOAA.
Insurance Premiums from $570 to $5,200
Lawmakers representing coastal regions say the new system will create unintended and costly consequences.
U.S. Sen. Bill Cassidy of Louisiana said a resident of flood-prone Lake Charles, with a home outside the official flood zone, could see their annual insurance premium jump from about $570 now to $5,200 under the new plan over the coming 10 to 15 years.
The senator said people who can’t afford insurance and who otherwise aren't required to carry it would simply drop coverage, further up-ending a system already in the red.
Federal assistance can be available for damage not covered by insurance - but people in high-risk zones who are uninsured and receive assistance after a flood might be required to buy insurance to receive aid in the future, according to FEMA.
“FEMA is not being upfront about these costs in the (long run), and that is what’s going to set up our actuarial death spiral,” Cassidy told reporters last month.
In the last 50 years, FEMA has collected about $60 billion in NFIP premiums and paid out $96 billion in costs.
Maurstad said the changes are "a part of transforming the NFIP so that it is sustainable into the next decade and for generations to come."
Hurting the Poor
Whatever the disagreements, everyone concedes change is vital to keep pace with worsening weather extremes, update flood maps to more accurately reflect today's risk, and address the toll climate change is having on many poorer Americans.
U.S. Rep. Carolyn Maloney, a New York Democrat, said homes where residents drowned in Hurricane Ida-related flooding were located in FEMA map areas that showed only a minimal risk.
“They do not take into account the storm sewer systems,” FEMA Administrator Deanne Criswell acknowledged to Maloney.
Officials have been grappling to find ways to cut risks - including buying out at-risk homes - that don't edge out lower-income residents who are vulnerable to increased flooding.
Craig Poulton, CEO of Poulton Associates, which administers the Natural Catastrophe Insurance Program, a private alternative to the NFIP, suggested that the government offer options to homeowners facing potential buyouts.
Those might include allowing them to sell to a private buyer at a higher price who pledges to make the property more flood resilient.
He also suggested capping compensation amounts at $1.5 million to $2 million, which could prevent the super-wealthy from benefitting too much under the current eminent domain system based largely on paying "fair market value."
Simply ensuring those who buy flood insurance pay a realistic price for it is also crucial to ensuring there is motivation to adapt to rising threats, he said.
“You’ve simply got to force people to pay a rate … where there’s some correlation to the risk. That invisible hand (of the market) has a tremendous curative power everyplace it goes,” Poulton added.
Romero, of New Mexico, said those least able to afford paying for insurance to cover the extra risk are often the ones lost in the shuffle.
“There’s just a lot of poor people [who] don’t understand all this stuff and they are being hurt,” he said.
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