Poor homeowners will pay less after flood insurance overhaul

An upcoming overhaul of the federal government’s flood insurance program will financially benefit many of the country’s lowest-income communities by reducing premiums for a large portion of their residents, according to an E&E News analysis of government data.

But restructuring will be costly for some affluent coastal communities, as the national flood insurance program begins charging higher rates for homes that are expensive to replace or vulnerable to sea level rise and intensification. storm surges.

E&E News’ analysis of recently released government data provides the most detailed snapshot yet on the impact of an unprecedented restructuring that will cause premiums for the country’s main flood insurance program to more accurately reflect the risk facing 5 million properties.

The restructuring, called Risk Rating 2.0, has some members of Congress fearful that flood insurance will become too expensive for millions of people when the new rates go into effect, starting in April. Conservationists say the new premium structure will discourage risky development in flood-prone areas.

Under pressure from lawmakers, the Federal Emergency Management Agency recently released data showing the number of policyholders in each postal code who will face rate increases and the number of those who will see their rates lower.

The records show rate changes in just the first year of the 2.0 risk rating, a limitation that has drawn criticism from FEMA, which manages the insurance program. Some policyholders will face annual increases for years, with FEMA gradually increasing premiums until they reflect a property’s risk of flooding.

E&E News combined FEMA records with Census Bureau data and found that households in lower income postal codes are more than twice as likely to see their insurance premiums drop than those in lower income postal codes. high income.

In postal codes where median household income is less than $ 27,000, nearly 43% of policyholders will see their rates drop next year, according to E&E News. The decreases will range from a few dollars to over $ 1,000.

In postal codes where the median household income is over $ 100,000, only 20% of policyholders will see their rates drop.

Most low-income postal codes are in areas with low housing replacement costs, such as Puerto Rico, Kentucky, and West Virginia.

Postal codes for high income earners are often found in states with high housing costs such as California, New Jersey, and New York.

E&E News analysis found no significant racial or ethnic impact.

In postal codes where a majority of the population is a racial or ethnic minority, 22.4% of premiums will decrease.

In zip codes where at least 95% of the population is non-Hispanic white, 24.5% of premiums will decrease.

The 2.0 risk rating marks the biggest change in NFIP since the program’s inception in 1968. It could reshape development patterns in the United States by making property insurance in high-risk flood areas more expensive.

Nationally, 23% of the 5 million NFIP policyholders will see their rates drop. Another 66%, or 3.3 million households, face rate increases of no more than $ 120 next year. For the remaining 11%, rates will increase by over $ 120.

E&E News analysis supports FEMA’s statements that the 2.0 risk rating will improve economic equity and undo a system that for years has over-charged people in low-income communities for insurance against floods while policyholders in rich areas paid too little.

“FEMA is correcting long-standing inequalities in the pricing of NFIP flood insurance,” said David Maurstad, FEMA’s head of the flood program, in a statement to E&E News in response to its conclusions. “Currently, policyholders with lower value homes pay more than their share of the risk, while policyholders with higher value homes pay less than their share of the risk. “

With the 2.0 risk rating, the NFIP “is better equipped to deal with the reality of frequent flooding caused by climate change,” added Maurstad.

E&E News analysis does not appease critics such as Sen. Bob Menendez (DN.J.), who issued a statement after FEMA released data saying the 2.0 risk rating “will shock huge rate “which will force some people to sell. Their houses.

A spokesperson for Menendez noted to E&E News that 79% of NFIP policyholders in New Jersey face rate hikes – one of the highest percentages of any state – and that the full effect of the rating Risk 2.0 remains unclear because FEMA has not released risk ratings for individuals. Properties.

The spokesperson added that it is not known which households within a postal code will see their rates drop or increase. This makes it impossible to assess an effect on equity because household incomes vary within a postal code.

“You don’t see who within these communities is seeing the decreases,” Menendez spokesperson said. “They gave us incomplete data to get the full picture. “

The country’s 33,000 residential postal codes have an average of about 4,300 households.

The 2.0 risk rating was not established for the purpose of helping low-income communities. It was not intended as the type of equity agenda President Biden adopted to tackle climate change. FEMA announced the 2.0 risk rating under President Trump.

But the 2.0 risk rating will result in more equitable insurance rates, as FEMA will recalibrate the flood risk for each property it insures using technology to create a more refined analysis.

FEMA has traditionally assessed the risk of flooding using rough methods that place a large number of properties in the same risk category. Today, an oceanfront mansion has the same insurance rate as a bungalow 400 meters inland, although their actual flood risks and replacement costs are different.

“Everyone in the area had the same price, regardless of the price of the property and its proximity to the water source,” said Jeremy Porter, research and development manager at the First Street Foundation, a non-profit organization that created the high resolution. flood maps for the whole of the United States.

The 2.0 risk rating creates a more detailed picture by including a range of new factors such as the precise location of a home and the cost of its replacement.

The result is that insurance rates will generally increase for properties on the coast, where flood risk, property values, and income levels are typically the highest. Rates will generally drop for inland areas that have a risk of flooding, lower land values ​​and lower income levels.

“The biggest increases are probably 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 which has become Risk Rating 2.0.

When Fugate led FEMA from 2009 to 2017, he said, “we found that the rates for inland residents tended to be higher to compensate for the rates for coastal residents. Residents of the interior subsidized coastal residents.

One of the risk rating 2.0 winners is the Mid City North neighborhood of Baton Rouge, Louisiana. It is a frequently flooded low-income area next to an oil refinery along the Mississippi River.

In the two zip codes that make up Mid City North, 73 percent of the 2,320 households with flood insurance will see their premiums drop, FEMA records show. Almost 20% of premiums will decrease by more than $ 1,200 per year.

The average median household income in Mid City North zip codes is $ 25,554, well below the national average of $ 68,703.

The effects of the 2.0 risk score are varied. Some wealthy communities will see widespread premium reductions and some low-income communities will see widespread increases.

“There are winners and losers in each of these areas. It’s not that all low-income areas will see a widespread reduction, ”Fugate said.

In Potomac, Maryland, along the Potomac River near Washington, 79% of the 240 NFIP premiums will decline. The median household income in the Potomac is $ 213,724.

In Chappaqua, NY, near the Hudson River in upstate New York, 65% of the 110 NFIP premiums will be reduced. The median household income in Chappaqua is so high that the Census Bureau only says it is over $ 250,000.

But in a lower part of the parish of Plaquemines in the swamps of southeast Louisiana, insurance rates will increase for 687 of the 695 insured. The median household income in the neighborhood is $ 35,281.

“You’re going to see a lot of pullback on the part of coastal landowners,” Porter said of First Street.

Reprinted from E&E News courtesy of POLITICO, LLC. Copyright 2021. E&E News provides essential information for energy and environment professionals.

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