Insurance News

Pressure Builds on Congress to Help People Afford Pricey Flood Insurance


Congress is under pressure to subsidize flood insurance costs for low-income households after the federal government announced last week that it would increase flood insurance premiums for millions of homeowners.

Of the 5 million properties insured by the National Flood Insurance Program, about 3.9 million soon will see a hike in premiums—and 200,000 substantially so. The new rates will go into effect in October for new policyholders and April 2022 for homeowners renewing policies (Climatewire, April 2).

“An affordability plan is still needed,” said David Maurstad, the Federal Emergency Management Agency official in charge of the program. FEMA manages the National Flood Insurance Program.

Roughly one-third of NFIP’s 5 million policyholders—nearly 1.7 million households—have an income that is less than 85% of the median income in their region, Maurstad said. He called the income levels “a barrier to closing the insurance gap” of people who live in flood-prone areas but do not have flood insurance.

The problem is not new to lawmakers.

Congress has failed to make flood insurance affordable in the three years since FEMA gave Congress a 111-page report listing options for premium subsidies.

FEMA’s report to Congress in April 2018 found that 26% of the homeowners who have flood insurance and live inside a high-risk flood zone were low income.

The report also found that a stunning 51% of the homeowners who live in a high-risk zone but don’t have flood insurance were low income—and may be deterred from buying coverage because of prices.

“They’re going to have some choices they’re going to have to make,” Maurstad said of Congress. “This is something the Biden administration will strongly consider.”

FEMA said Thursday that it would raise insurance premiums sharply for roughly 200,000 policyholders as part of the agency’s long-awaited plan to make insurance rates more accurately reflect a property’s flood risk. Many of those 200,000 policyholders own expensive homes in high-risk flood zones and have been paying too little for flood coverage, FEMA says.

But more worrisome are the roughly 3.7 million NFIP policyholders who would see their insurance rates increase moderately—and the millions of other people who don’t have flood coverage and could be deterred from buying policies under FEMA’s new pricing structure.

Not everyone would be hurt by the change. Roughly 1.1 million people would see their insurance premiums decline.

FEMA’s new pricing “will need to be accompanied by an affordability program that Congress must pass to ensure that anyone who needs or wants flood insurance can afford it,” Shana Udvardy, a climate resilience analyst at the Union of Concerned Scientists, wrote in a blog post last week.

If Congress fails to help low-income households buy flood insurance, the new pricing structure “risks exacerbating the racial and socioeconomic disparities that already exist within flood-prone areas,” Udvardy added.

Udvardy and other climate advocates praised FEMA for adopting a pricing structure that they say would deter development in flood-prone areas by making insurance more costly in those areas.

The price structure is a “first critical step” to preparing “for the realities of climate change,” Carolyn Kousky, executive director of the University of Pennsylvania’s Wharton Risk Management and Decision Processes Center, wrote in a column Friday in The Hill.

“However,” Kousky added, “it should be accompanied by a congressionally-established affordability program for those in need.”

The average flood insurance policy for someone in a high-risk flood zone costs about $1,100, which includes both the policy premium and fees. For homeowners living outside a flood zone, the cost is about $500 a year. Federal law requires people to have flood insurance if they own a property that is located in a flood zone and is secured by a federally backed mortgage.

FEMA’s report to Congress three years ago on subsidies noted that premium increases “could cause additional affordability challenges for policyholders who are already burdened by the cost of their flood insurance, as well as for potential policyholders.”

The report described a range of approaches to subsidizing insurance premiums including giving subsidies to people based on their income or on the percentage of their income that they spend on housing costs. The options ranged from minimal subsidies of just $34 a year on average to subsidies averaging $1,010 per household.

The subsidies could be funded either by federal taxpayers or by a narrow group encompassing only people who bought flood insurance through the federal program, the report said.

The House Financial Services Committee unanimously passed legislation in 2019 that would have set up a demonstration program of subsidies for low-income households. The measure did not come to the House floor for a vote.

Financial Services Chairwoman Maxine Waters (D-Calif.) has indicated she would try to revive the 2019 legislation this year. But the committee has taken no action so far on flood insurance.

Reprinted from E&E News with permission from POLITICO, LLC. Copyright 2021. E&E News provides essential news for energy and environment professionals.


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