Sandy exposed flood insurance failure

Commentary: Federal coverage underestimates risk, fails to consider sea-level rise and encourages hazardous development

Superstorm Sandy is expected to rank second worst to date in terms of insured losses, after Hurricane Katrina.
Mario Tama/Getty Images

It has been one year since Superstorm Sandy pounded ashore near Atlantic City, N.J., bringing death, destruction and massive flooding from heavy rainfall and coastal storm surge. Recovery continues, but often slowly and painfully. What is clear is that climate change and existing patterns of coastal development are raising risks of harm from major storms along our coasts. In order to face these dangers in a more resilient way, we must rethink how and where we rebuild. Reforming our current flood insurance system is a critical piece of the solution.

While final figures for insurance claims from Sandy are not yet in, this disaster ranks as the second worst to date in terms of insured losses (which are still only a partial measure of loss), after Hurricane Katrina. Estimates put the payouts from the National Flood Insurance Program (NFIP), the taxpayer-backed federal program, at somewhere between $12 billion and $15 billion. Separately, private insurance losses will likely approach $19 billion. In addition, there is federal disaster relief. New Jersey alone has received $5.6 billion in federal aid to date, including $3.5 billion from the NFIP and $2.1 billion in federally funded grants and loans to households, individuals and businesses.

While insurance can be a powerful tool to help manage risks from coastal flooding, our current system of taxpayer-subsidized flood coverage is not helping us manage the problem effectively. With premiums that often do not reflect true risks and costly subsidies, the NFIP has for decades actually reinforced hazardous development choices along our coasts, putting people and property in harm’s way.

The National Flood Insurance Program’s artificially low rates and subsidies, combined with major storms, have been catastrophic for the solvency of the program.

Climate change is escalating these risks. The East and Gulf coasts of the United States are experiencing higher and more rapid rates of sea level rise than the current global average of 8 inches seen since 1880. Projections show there is a 90 percent certainty the global sea level will rise between at least 8 inches and more than six and half feet above 1992 levels by the end of this century. A recent study commissioned by the Federal Emergency Management Agency (FEMA) shows high-risk flood areas along U.S. coasts could increase by 55 percent by the end of the century. Climate change accounts for 70 percent of the increased flooding; population growth accounts for the rest. 

Better flood-risk maps and insurance rates that reflect true hazards would go a long way toward communicating these increasing risks to coastal communities.

Affordable insurance mandate

The NFIP is virtually the only source of flood insurance for homes and small businesses in the United States. Created by Congress in 1968 and administered by FEMA, the program has, as of 2012, provided more than 5.6 million insurance policies, with approximately $1.25 trillion in insured assets.

The NFIP was formed in response to massive flooding along the Mississippi River in the 1960s, which made flood insurance difficult and expensive to find on the private market. Designed to provide affordable insurance, it also provides incentives (in the form of lower insurance premiums) for homeowners and communities to reduce their flood risks by investing in flood-proofing measures.

However, in its current iteration, the NFIP is financially unsustainable. Long-standing flaws in the program — including artificially low rates that do not reflect risk, flood maps that do not include sea-level-rise projections, payouts to properties that flood repeatedly and loopholes for “grandfathered” properties — threaten not only its success but also its survival as a solvent program.

A growing taxpayer liability

The NFIP’s artificially low rates and subsidies, combined with major storms, have been catastrophic for the solvency of the program. As of November 2012, the program was more than $20 billion in debt, in part because it was forced to borrow heavily to pay claims in the wake of Hurricane Katrina. This number is likely to rise to nearly $30 billion once all Superstorm Sandy claims are settled. Even prior to Sandy, New Jersey ranked third in the nation in total NFIP claims between 1978 and August 2013, at $5.4 billion. New York is not far behind at $4.9 billion.

Insurance rates under the NFIP are determined in part by maps that zone areas by level of flood risk. These Flood Insurance Rate Maps (FIRMs) are a way to help homeowners and communities understand their flood risks better. Unfortunately, lack of funding from Congress has meant FEMA has not been able to update these maps on a regular basis — and many are decades old. These outdated flood-risk assessments are one reason insurance rates have remained artificially low. Furthermore, these maps — and therefore insurance rates — do not take into account projections of sea level rise. This is true even of the new maps that are being unveiled in New Jersey and New York to help guide rebuilding after Sandy.

Reforming the NFIP

Last July, in a bipartisan effort, Congress passed the Biggert-Waters Flood Insurance Reform Act. The legislation is being implemented in stages throughout 2013 and 2014, and it goes a long way toward reforming the NFIP by phasing in rate increases that reflect risk and phasing out long-standing subsidies. Inevitably, insurance rates are rising as a result of these changes, especially in areas where FEMA’s latest maps show higher flood risks.

While the rate increases have been a shock to some coastal homeowners, they reflect the fact that many coastal residents have long paid highly subsidized rates that were in some cases determined by outdated flood-risk maps. There has been some public outcry, as well as calls for Congress to delay or roll back the reforms called for in Biggert-Waters. That would be a mistake. Certainly, Congress should act swiftly to ensure that those who live and work along the coast — especially those with low or fixed incomes — have options, such as a voucher or rebate system coupled with grants or loans for flood-proofing measures, to help them manage rising insurance costs and flood risks. But without these necessary and overdue reforms, the NFIP’s future solvency and ability to meet the flood insurance needs of homeowners are in grave doubt.

Congress should also ensure that certain provisions in the legislation — such as those meant to help FEMA update its flood risk maps to include sea level rise projections — are actually implemented, so coastal residents can make better-informed, long-term decisions. Steps should be taken, too, to examine whether the commissions that go to the private companies that write and service NFIP policies are overly generous.

On an individual level, the most important thing people can do is to become better aware of their flood danger, through local flood risk maps available on the FEMA web site. People living in an area prone to flooding should buy NFIP coverage both for their homes or small businesses and for their contents, because regular homeowner insurance policies do not cover flood damages. Learning how to lower flood risk — at the individual level and as a community — and investing in these measures can also help reduce premiums. Under the NFIP, homeowners and communities can decrease their premiums by as much as 45 percent by going beyond the basic FEMA requirements and investing in extra measures that reduce flood risks. However, these measures — which can include elevating your home above minimum recommendations or creating open buffer zones against flooding — can be costly, and in some cases, infeasible.

When the risk is too high

Some coastal areas might simply be too flood-prone to be safe for homes and people — or too risky to justify insuring them. To help reduce exposure to danger over the long term, voluntary programs for home buyouts should be made more widely available for those who would like to take advantage of this option. Existing programs like FEMA’s Hazard Mitigation Grant Program and the Department of Housing and Urban Development (HUD)’s community development block grant program should be expanded.

New Jersey has received $55.1 million for the purchases of 272 homes in Sayreville and South River, communities that sustained extensive flooding from the Raritan and South Rivers due to Sandy, as part of a $300 million buyout program that New Jersey is conducting using funds from FEMA, the New Jersey Department of Environment’s Blue Acres Program and HUD.

New York Gov. Andrew Cuomo has also launched an ambitious $400 million buyout program, using FEMA and HUD funds, and offers have already been extended to hard-hit communities on Staten Island and Long Island.

A policymaking vanguard

With a long history of risky coastal development, it will not be possible to fix everything overnight. But going forward, coastal communities and homeowners need good scientific information and risk-assessment tools, as well as financial help, to prepare for the growing threats from rising seas and worsening storm surge. We cannot just continue doing things the way we always have.  

Governors Christie and Cuomo clearly recognize these new post-Sandy realities, and must be part of a vanguard of coastal-state policymakers who not only spearhead long-term plans to help their communities, but also galvanize a national conversation about the policies and resources needed to address climate change. The fact is our carbon emissions from burning fossil fuels are warming the world and causing worsening impacts. We must cut these emissions sharply, even as we prepare for the changes that are already coming our way.

Opinions expressed here do not necessarily reflect those of Al Jazeera America.

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