An upcoming revision of the federal government’s flood insurance program will financially benefit many of the country’s lowest-income communities by lowering premiums for a large portion of their residents, an analysis of government data by E&E News shows.
However, restructuring will be costly to some affluent coastal communities as the National Flood Insurance Program charges higher prices for homes that are expensive to replace or that are vulnerable to rising sea levels and intensifying storm surges.
Analysis of the newly released government data by E&E News provides the most detailed insight yet into the impact of an unprecedented restructuring that will result in the premiums in the country’s main flood insurance program more accurately reflecting the risk of 5 million properties.
The reorganization, called Risk Rating 2.0, raises concerns among some members of Congress that flood insurance will become too expensive for millions of people when the new tariffs go into effect in April. Environmentalists say the new premium structure will prevent risky development in floodplain areas.
Under pressure from lawmakers, the Federal Emergency Management Agency recently released data showing the number of policyholders in each zip code facing tariff increases and the number of those whose tariffs will decrease.
The records show rate changes only in the first year of Risk Rating 2.0 – a caveat that has sparked criticism of FEMA, which operates the insurance program. Some policyholders face annual increases for years as FEMA gradually increases premiums until they reflect a property’s flood risk.
E&E News combined the FEMA datasets with data from the Census Bureau and found that households in the lowest-income postcodes were more than twice as likely to drop insurance premiums than the high-income postcodes.
In zip codes where the median household income is less than $ 27,000, nearly 43% of policyholders will see their rates decline over the next year, E&E News found. The cuts range from a few dollars to more than $ 1,000.
In zip codes where the median household income is more than $ 100,000, only 20% of policyholders will see rate reductions.
Many of the low-income zip codes are in areas with low housing replacement costs such as Puerto Rico, Kentucky, and West Virginia.
The high income zip codes are often located in high cost housing states such as California, New Jersey, and New York.
Analysis by E&E News found no significant racial or ethnic impact.
In postal codes where the majority of the population belongs to a racial or ethnic minority, 22.4% of the premiums will be reduced.
In zip codes where at least 95% of the population is non-Hispanic white, 24.5% of premiums will be reduced.
Risk Rating 2.0 marks the biggest change in NFIP since the program was launched in 1968. It could reshape development patterns in the United States by making it more expensive to insure property in high risk areas.
Nationwide, 23% of NFIP’s 5 million policyholders will have their rates down. Another 66% – or 3.3 million households – will face interest rate hikes of no more than $ 120 over the next year. For the remaining 11%, prices will increase by more than $ 120.
E&E News’s analysis supports FEMA’s assertions that Risk Rating 2.0 will improve economic justice and undo a system that has overbilled people in low-income communities for flood insurance for years, while policyholders in affluent areas have underpayed .
“FEMA is addressing long-standing injustices in the pricing of NFIP flood insurance,” said David Maurstad, the FEMA official in charge of the flood program, in a statement to E&E News in response to the findings. “Currently, policyholders with lower-valued homes are paying more than their share of the risk, while policyholders with higher-rated homes are paying less than their share of the risk.”
With the risk assessment 2.0, the NFIP is “better equipped to deal with the reality of frequent floods caused by climate change,” added Maurstad.
Analysis by E&E News appeases critics such as Sen. Bob Menendez (DN.J.), who issued a statement after FEMA released his data that Risk Rating 2.0 “will cause a huge interest rate shock” which will force some people to sell their homes.
A spokesperson for Menendez told E&E News that 79% of NFIP policyholders in New Jersey face rate increases – one of the highest percentages of any state – and that the full impact of Risk Rating 2.0 remains unclear as FEMA does not provide risk ratings for individuals has published properties.
The spokesman added that it is not known in which households within a zip code the rate will decrease or increase. This makes it impossible to assess an equality effect as household incomes vary within a zip code.
“You don’t see who is seeing the decline in these communities,” said the Menendez spokesman. “You gave us incomplete data to get a complete picture.”
The country’s 33,000 residential postcodes have an average of around 4,300 apartments.
Risk Rating 2.0 was not created with the aim of helping low-income communities. It was not designed to be the kind of equity program that President Biden put in place to tackle climate change. FEMA announced Risk Rating 2.0 under President Trump.
However, Risk Assessment 2.0 will result in fairer insurance rates as FEMA uses technology to recalibrate flood risk for each property it insures to produce a more refined analysis.
FEMA traditionally assesses flood risk using crude methods that place a large number of properties in the same risk category. Today a villa by the sea has the same insurance rate as a bungalow 400 meters inland, even if the actual flood risks and replacement costs are different.
“Everyone in the zone was charged the same regardless of how expensive the property was or how close it was to the water source,” said Jeremy Porter, director of research and development at the First Street Foundation, a nonprofit that creates high-resolution imagery has flood maps for the entire United States.
Risk Rating 2.0 creates a more detailed picture by taking into account a number of new factors such as the exact location of a house and the cost of replacing it.
The result is that insurance rates are generally increasing on coastal property, where flood risk, property value and income are typically highest. Rates will generally decrease for inland areas with lower flood risk, lower property value and lower income levels.
“The biggest gains are most likely where you have the high-income zip codes because they’re closer to the water,” said former FEMA Administrator Craig Fugate, who started the program that became Risk Assessment 2.0.
When Fugate ran FEMA from 2009 to 2017, he said, “We saw that inland rates tended to be higher to offset the rates for coastal residents. Inland residents subsidized the coastal residents. “
A winner in Risk Rating 2.0 is the Mid City North neighborhood in Baton Rouge, La. It’s an often flooded, low-income area adjacent to an oil refinery along the Mississippi River.
In the two zip codes that make up Mid City North, 73% of the 2,320 households with flood insurance will cut their premiums, FEMA records show. Almost 20% of the premiums will decrease by more than $ 1,200 per year.
The median household income in the Mid City North zip codes is $ 25,554 – well below the national average of $ 68,703.
The effects of Risk Rating 2.0 are manifold. Some affluent communities will see sweeping premium cuts and some low-income communities will see sweeping increases.
“In each of these zones there are winners and losers. It’s not that all low-income areas will see an overall decline, ”Fugate said.
In Potomac, Maryland, along the Potomac River near Washington, 79% of the 240 NFIP awards will decline. The median household income for Potomac is $ 213,724.
In Chappaqua, NY, near the Hudson River north of New York City, 65% of the 110 NFIP awards will drop. Chappaqua’s median household income is so high that the Census Bureau only speaks of more than $ 250,000.
But in a low-lying part of Plaquemines Parish in the swamps of southeast Louisiana, insurance rates will rise for 687 of the 695 policyholders. The median household income in the neighborhood is $ 35,281.
“You will see a lot of opposition from owners of coastal properties,” said Porter of First Street.
Reprinted from E&E News with permission from POLITICO, LLC. Copyright 2021. E&E News provides important news for energy and environmental professionals.