When frequent floods make insurance costly

(NYTIMES) – Climate change is going to hit the pockets of home owners who need to buy flood insurance.

Starting this month, communities in Florida and elsewhere around the United States will see “flood” subsidies disappear in a nationwide experiment in trying to adapt to climate change: forcing Americans to pay something closer to the real cost of their flood risk, which is rising as the planet warms.

While the programme also covers homes around the country, the pain will be most acutely felt in coastal communities. For the first time, the new rates will also take into account the size of a home, so that large houses by the ocean could see an especially big jump in rates.

Federal officials say the goal is fairness – and also getting home owners to understand the extent of the risk they face, and perhaps move to safer ground, reducing the human and financial toll of disasters.

In some parts of Florida, the cost of flood insurance will eventually increase tenfold.

For example, Ms Jennifer Zales, a real estate agent who lives in Tampa, pays US$480 (S$651) a year for flood insurance. Under the new system, her rates will eventually reach US$7,147, according to Mr Jake Holehouse, her insurance agent.

The average annual premium is US$739. Until now, the Federal Emergency Management Agency (Fema), which runs the programme, has priced flood insurance based largely on whether a home is located inside the so-called 100-year flood plain, land expected to flood during a major storm.

But that distinction ignores threats like intense rainfall or a property’s proximity to the water. Many home owners pay rates that understate their true risk.

The result has been a programme that subsidises wealthier coastal residents at the expense of home owners farther from the water. That masking of true costs has also increased demand for houses in high-risk areas. As climate change makes flooding worse, using public money to underwrite waterfront mansions has become increasingly hard to defend.

The financial consequences of that new reality will be staggering for some communities.

The flood programme insures 3.4 million single-family homes around the country. For 2.4 million of those homes, rates will go up by no more than US$120 in the first year, according to data released by Fema – similar to the typical annual increases under the current system. An additional 627,000 homes will see their costs fall.

But 331,000 single-family homes around the country will face a significant rise in costs. More than 230,000 households will see increases of US$120 to US$240 in the first year; an additional 74,000 households will see costs go up between US$240 and US$360. For about 25,000 single-family homes, costs will jump between US$360 and US$1,200.

Almost half of those 25,000 households are in Florida, many of them along the string of high-risk barrier islands that run from St Petersburg south to Fort Myers.

Because federal law prohibits Fema from raising any household’s flood insurance rates by more than 18 per cent a year, it will take years before current home owners are charged their full rates under the new system. About half of the policyholders will not see the full increase in their rates for at least five years. Some may not see it for nearly 20 years.

Mr Holehouse, who in addition to selling insurance is also a flood insurance advocate for St Petersburg, said it was misleading for Fema to disclose the price changes for only the first year of the new rate schedule.

“I want to talk about five to 10 years from now, because most people take a 30-year mortgage.”

The rate increases around Tampa Bay are unusual, according to Fema. The agency stressed that most people around the country whose rates are going up will see far smaller changes, and many others will see a decrease.

“For the first time, our policyholder premiums will be based on their individual risk,” said Mr David Maurstad, who runs the flood insurance programme at Fema.

“We pledge to continue to evaluate and make adjustments where and when it’s warranted.”

But the growing threat of climate change may make that kind of intervention less successful, said Mr Roy Wright, who ran the flood insurance programme until 2018 and now runs the Insurance Institute for Business and Home Safety.

“We cannot hide the truth of this increasing risk,” he said. “We shouldn’t hide it. Tell people the truth.”

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