Flooding to Send Property Insurance Through the Roof?

Inevitable rise of insurance premiums

Rising cost of flooding
Rising cost of flooding

According to a new report released in June 2013 by the Federal Emergency Management Agency (FEMA) flood risks areas in the United States may increase by as much as 45 percent by the year 2100. This could almost double the number of properties already covered by the National Flood Insurance Programs, thus greatly increasing the costs that flooding incurs. The report anticipates sea levels rising by about four feet towards the end of the century. The premiums paid into the National Flood Insurance Program (NFIP) came to $5.2 billion in 2009 and there is the possibility that this figure could reach $11.2 billion by 2100. This being the case, the NFIP would have twice as many buildings to cover, and future flooding could send the cost of property insurance through the roof.

Major storms over the past ten years have dealt a heavy blow to the program. Hurricane Katrina sent the NFIP into a debt of $16 billion, and after Hurricane Sandy, that amount has risen to $25 billion, a debt that the NFIP may be unable to clear. The average loss on each insured property could increase by 90 percent, a figure that the victims of future storms and flooding may have to cover themselves. If they cannot, it will likely be left to the Tax payer to make up the difference.

The NFIP is already so much in debt, it is one of the biggest fiscal liabilities for the US government. The FEMA report is the culmination of a five year study and notes that population growth will only contribute to a 30 percent increase to flooding, but that climate change will be responsible for 70 percent. If your property is in what FEMA classes as a special flood hazard area and your mortgage is federally backed, then you are legally bound to take out flood insurance. If there is a one percent risk of major flooding in your area in any given year, then you are in a special hazard area. This may also be known as a 100 year floodplain.

At present the NFIP insures 5.6 million properties, however that number may increase to 11.2 million by the year 2100. Various reports claim that sea levels will rise by as much as four feet over the next 86 years. Last year the National Oceanic and Atmospheric Administration suggested this could even be as high as six feet.

When sea levels rise shorelines erode, intensifying the surge rush with major storms. Temperature increase causes heavy rain, contributing to the flooding of river areas.  Add to this, expanding paved areas and run off from drainage systems, and the problem is exacerbated. At present, many home owners pay flood insurance premiums that are subsidized by the government. The projected losses for FEMA are so great that a 70 percent increase in the cost of policies could be needed, almost doubling the policy holders’ payments per year.

The FEMA report is not intended as a set of recommendations, but as a study on which to build a better analysis of scientific findings on climate change.  If you are planning on building or buying a property to pass along to your children and grandchildren, it might be well worth your while checking any future risks of flooding in your chosen area as the cost of premiums could go through the roof.

By Jean Reinhardt