Could flood insurance premiums increase by more than 450% in parts of New Orleans? Or nearly 900% in Covington neighborhoods?
Trying to figure out what premium you’ll end up paying because of sweeping changes to the National Flood Insurance Program is akin to solving a puzzle with missing pieces. FEMA, which oversees the program, was stingy with information.
But clues have emerged in newly written insurance policies and in research by the nonprofit First Street Foundation, which has developed its own model of flood risk. These clues suggest that numbers like the ones above could turn out to be correct.
Local Louisiana officials and the state’s congressional delegation have been trying to raise awareness of the new flood insurance rates, warning that residents have been left in the dark about the magnitude of the increases to which they could be faced. They say such steep premium hikes could devastate some communities in southern Louisiana, where everyone lives near water.
FEMA has sought to reassure critics by describing the revamped program, known as Risk Rating 2.0, as fairer for everyone. It is designed to more accurately assess the flood risk of each individual property and eliminate a system where older, cheaper homes essentially subsidized premiums for beachfront vacation homes.
It also says about 20% of Louisiana policyholders will see one-time decreases in the new system.
But at the same time, FEMA has only released numbers on increases and decreases for the first year of the Risk Rating 2.0, obscuring the full impact, as premiums will continue to rise in the future for many .
The concern is that parts of the housing market in Louisiana, which has the nation’s highest participation rate in the National Flood Insurance Program, will be drastically reshaped by the changes.
Working-class families who bought homes on the basis of cheap flood insurance rates could now face large incremental increases over several years, which would significantly increase their mortgage payments. Those buying new homes will have to pay the new rates immediately.
The burden could be unmanageable for some residents, warn parish leaders. St. Bernard Parish President Guy McInnis was perhaps the most blunt, calling the increases “stupid.” There are also concerns about the effect the new rates will have on reconstruction in areas hard hit by Hurricane Ida.
Estate agents, insurers and property managers struggled to explain the changes to customers.
“It’s more like the trio of insurance increases,” said Bill Soniat of Soniat Realty, who manages property in the New Orleans metro area and saw much of it flooded during Hurricane Katrina. “It’s not just about flooding. It’s flooding, ownership and a bit on the liability side in our market.
Soniat said of the new flood insurance rates: “When people buy, it becomes an important question that people ask.”
Hints on the new prices
The 2.0 risk rating began in October for new policies and in April for existing policies. Existing policyholders will begin to see the change on their next renewal notice.
For most current policies, increases are limited to 18% per year, meaning those who see significant increases will see them gradually over the years. Dialed digits will add to large numbers in some cases. Renewal notices will indicate the “total risk premium” – the target rate towards which these 18% increases are heading.
Since the new system is intended to assess risk more accurately, an insightful clue as to what that might mean is the New York-based First Street Foundation. “The cost of the climate” Analysis published last year. One element of the comprehensive analysis estimates current rates and compares them to what it calculates as the expected average annual loss.
The results are startling – and perhaps frightening to some.
The analysis lists the 10 Louisiana municipalities with the largest difference between estimated average flood insurance premiums and expected average annual loss — in other words, the places where premiums now least reflect risk. Using his own model, he looked at residential properties considered to be at significant flood risk.
This means properties in areas required to carry flood insurance, but also potentially some outside of it.
Lacombe, parts of which lie adjacent to Lake Pontchartrain and Bayou Lacombe, tops the list. According to the foundation, the average estimated premiums for 2021 were $853, but the average expected loss was $8,538, a difference of 901%.
Covington, where the Bogue Falaya and Tchefuncte rivers flow, comes second with a difference of 891%. The foundation lists average estimated premiums at $781, compared to $7,745 for the average expected loss.
Next come LaPlace, Houma, Luling, Reserve, New Orleans, Eden Isles, Belle Chasse and Meraux. For New Orleans, the average premium is $577, while the expected loss is $3,219, a difference of 458%.
The foundations Flood factor allows searches by address to determine risk. The Little Woods neighborhood of eastern New Orleans is particularly at risk, for example.
Does this mean that the bounties for certain districts will definitely increase by this amount? Early feedback suggests it’s possible.
“Just with a purely risk-based approach, one would expect that at some point rates would start to approach what we show in our model,” said the foundation’s Jeremy Porter.
Separately, the foundation projects 30 years ahead to determine which communities will see the greatest increase in flood losses, taking into account climate change and sea level rise. Lake Charles is among the top 10 Louisiana communities in this category, with a projected increase of 1,040%.
Regarding premium prices, there are already concrete and real examples:
- A local homebuilder says his business is see policies increase from $650 per year to around $3,500 for homes between $250,000 and $500,000.
- A man who lives near Boutte asked for an estimate as if his house was new to get an idea of what he will face. the the quote came back at $8,100 compared to the $567 he currently pays.
- A resident of Houma seen a quoted policy for his new home at around $3,800 compared to the $575 he had paid.
- Estate agents and insurers report premiums quadruple or more in some cases.
Risk Rating 2.0 marks the biggest change in the way rates are set since the NFIP’s inception in 1968. It uses a complicated algorithm that draws on various databases, some of which are not public, to calculate new rate. The old system relied heavily on FEMA maps.
A range of factors are taken into account in the new system, including distance from the water, type of construction, elevation and cost of rebuilding. But it’s impossible to understand how these calculations are made because some aspects of the new system, developed with consulting firm Milliman, are not publicly available.
There is broad consensus on the purpose of accurate risk pricing, both to inform residents of the dangers of where they have chosen to live and to help put the heavily indebted NFIP on a path to recovery. solvency.
But it raises the question of whether the government should play a role in keeping flood insurance affordable for those who need it. Many point out that the failures of the federal levees during Hurricane Katrina, which resulted in much of the NFIP’s debt, were due to shoddy engineering rather than rash decisions about where to live.
Legislation has been proposed by both Louisiana Senators Bill Cassidy and John Kennedy, as well as U.S. Representatives Garret Graves, R-Baton Rouge and Troy Carter, D-New Orleans, to address some of the concerns, but no has so far not been approved.
There are also questions about the extent to which mitigating works such as raising a house can reduce a premium. FEMA recently published a document seeking to further explain the discounts available for such work, but that leaves a lot of questions unanswered.
Chad Berginnis, executive director of the Association of State Floodplain Managers, welcomes the attempt to communicate the real risk to homeowners as well as FEMA’s overhaul of the old card-based system, which was widely seen as inadequate. He sees the new system as a step in the right direction, but says some important concerns need to be addressed.
Owners need a clear explanation of how they can mitigate their properties, and some form of help should be offered to those who cannot afford the increases, Berginnis said. His organization has also advocated for the automatic cancellation of NFIP debt after catastrophic events.
FEMA cannot institute financial assistance alone. He needs Congress to approve this, which he hasn’t done yet.
Berginnis would also like to see FEMA release a tool that would allow residents to receive an estimated rate, with the ability to plug in elevation heights and other factors to get an idea of how high they should build.
“The problem is that we no longer have a table or a manual,” he said. “We don’t have a tool that we can use to help advise people on the right way to not only be more resilient, but also lower their rate.”