Increases in flood insurance will drive 1 million people out of the market, according to a FEMA report | business news | Business Insurance

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ST. LOUIS — Asked by members of Congress, the Federal Emergency Management Agency said its new update to the national flood insurance program will encourage more people to sign up for coverage, even though many will pay more for it.

But in a FEMA report obtained by The Associated Press under the Freedom of Information Act, the agency estimates that 1 million fewer Americans will buy flood insurance by the end of the decade, a sizeable number of people at risk of loss. catastrophic financials.

like climate change increases the risk of flooding in many parts of the country, FEMA has updated its flood insurance program to more accurately reflect risk, but also make the program more solvent. It’s partly a response to criticism that taxpayers were funding big payouts when seaside mansions in risky locations were flooded.

But nine senators from both parties expressed “serious concerns” about the new pricing system in a letter last September, after hearing that internal agency figures forecast policies would drop by 20%. The following month, FEMA told the AP that those figures were “misleading” and “out of context” and that on the issue of how many people will be insured, “there is no study or report to share.”

However, the agency painted a different picture late in the year when it sent a report to the Treasury secretary and a handful of congressional leaders saying the highest prices it would drive a drop of 1 million policies compared to the beginning of the decade.

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The question of how many people are left uninsured by floods is vital, said Chad Berginnis, executive director of the Association of State Floodplain Managers.

“We’re talking about basic economic health, I’m thinking not just of our homes and businesses, but of our communities in general,” if fewer people buy flood insurance, he said.

The federal flood insurance program began when many private insurers stopped offering policies in high-risk areas. It operates in the red, paying more in claims than it charges in premiums. By setting rates more precisely, the update, officially known as Risk Rating 2.0, makes it more expensive to develop in flood-prone regions, shifting disaster risks onto those homeowners.

Risk Rating 2.0 will take into account a property’s unique flood risk, such as its distance from the water and the cost of rebuilding. The old system was largely based on a home’s elevation and whether it was in a designed flood zone. Most policyholders will now see their rates go up. But for the first time, nearly a quarter of policyholders will see theirs drop. Buyers of new policies began to see the new prices in October.

FEMA dismissed the report obtained by the AP as a dovish projection, meant to forecast finances, not insurance participation. The agency said it has not directly studied how many people will buy flood insurance.

“There are numerous reasons why growth could occur as time goes on,” said David Maurstad, a senior executive with the National Flood Insurance Program, adding that an enrollment analysis should consider the agency’s marketing efforts. , the show’s clear message about flood risk, price declines, and other factors.

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But critics like Sen. Bob Menendez, DN.J., said affordability is an issue and that FEMA did not disclose the impact of those higher costs.

“This report makes clear that FEMA was not transparent with policyholders, Congress, and ultimately the American public,” Menendez said in a statement. A records request should not have been necessary for the details to emerge, he said.

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When Francisca Acuña, a climate and community activist in Austin, Texas, received a new appointment, she found it hard to believe.

“I say, ‘no, you’re making a mistake,’” he said.

Acuña had previously paid $446 a year. Under Risk Rating 2.0, she was quoted $1,893. Rate increases this large are rare. Increases are usually capped at 18% a year, but Acuña, juggling other expenses, let his policy lapse, forcing him to pay the full amount immediately.

“There is no way, there is no how, that I can afford it,” Acuña said.

Informed about Acuña’s situation, Maurstad said that the rates reflect the real risk. it’s unlucky when people face big raisesBut ensuring the financial health of the program and accurate fees is “good public policy,” he said.

Jim Rollo, a New York-based insurance agent, said he’s seeing a change in attitudes among some buyers. Some seem more skeptical about properties that have been previously flooded and have higher premiums. Others “roll the dice” and forgo expensive insurance if it’s not necessary.

“We are writing fewer policies than before,” Rollo said.

Congress should create an affordability program for people struggling to buy insurance and fund efforts to improve flood protections, said Joel Scata, an attorney with the Natural Resources Defense Council, an environmental advocacy group.

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But Maurstad said that FEMA’s mission is different from that of the private sector. FEMA must help people “before, during and after” disasters, as well as charge risk-based and financially sound premiums.

“We have certain responsibilities that we are charged with. Number of policies sold is not one of them, again, because we are a government program,” he said.

However, the agency report predicts that the program, even with higher revenues, will continue to sink deeper into debt.


The Associated Press receives support from the Walton Family Foundation for coverage of water and environmental policy. The AP is solely responsible for all content. For all AP environmental coverage, visit