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California is waiting for a wake-up call about flood insurance

HOURPlaces are surrounded by flood waters on January 11, 2023 in Planada, California.
A photo: Justin Sullivan (Getty Images)

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California has nearly weathered the latest in a relentless string of storms that have flooded the state since late December, resulting in tens of thousands evacuations, at least 20 deaths and an estimated $1 billion in compensation.

From failed levees in Merced and Sacramento counties in the Central Valley to flooded rivers along the coast, the rains have affected almost every part of the state, and many areas have received four to six times rainfall is above average for the past few weeks. Landslides blocked major roads, thousands of homes were flooded and power lines were knocked out from behind trees. 13000 Electricity consumers have not yet restored service as of Tuesday afternoon.

Meteorologists expect by Thursday last storm, weaker this time, will clear northern and central California. But in the coming weeks, as the floodwaters recede and the effects of the rains become apparent, many residents could face a second crisis. at home.

“California is a place where water concerns are about scarcity, not abundance,” said Rebecca Elliott, professor at the London School of Economics, who wrote a book about flood insurance in the United States. “Many, many thousands of Californians will assume they have flood protection and find they don’t.”

Standard homeowner insurance does not include flood insurance, although according to Recent Poll, 47 percent of Americans assume it is. Only 1.33 percent of California households have standalone policies under the National Flood Insurance Program, the federal system that provides 95 percent of flood coverage in the United States. The share of private flood protection policies in California is even smaller. However, as of early this month, 90 percent of the state’s population was under flood watch.

The Federal Emergency Management Agency, or FEMA, requires homeowners with federally-issued mortgages to purchase flood insurance if they are in what they call “highly hazardous flood areas.” Basically, it is a 100-year floodplain, or places that have a 1 percent chance of flooding per year. But the maps that FEMA uses to identify these areas wildly outdated. The First Street Foundation, a non-profit organization dedicated to flood risk modeling, has found that 5.9 million property owners nationwide who face significant flooding risk outside of FEMA’s official hazard areas.

“I show them topographic maps,” Nick Ramirez, an insurance salesman in Los Angeles, said of his clients, who are not required by law to purchase flood insurance. “I say, ‘Do you want to protect yourself?’ Some say yes, some just roll the dice.”

California Federal Emergency Management Agency maps, most of which were last updated in the 1980s and early 90s, if not earlier, left out about 80 percent of the state’s rivers and streams. They also do not take into account the worsening impacts of climate change, which include increased risk of flooding as the climate system shifts towards hydrological extremes. One reason they haven’t been updated is expense. Communities have also often resisted expanding flood zones to avoid homeowner costs and development restrictions.

Where FEMA requires compulsory insurance, the policy does not apply. Flood insurance requirements do not apply to repaid mortgages or real estate purchased with cash. And experts say homeowners often allow their policies to expire because mortgage companies don’t review them. The fact that lenders are securitizing their mortgages may be one reason they don’t pay close attention to it, Elliott said. “They split up these mortgages, pool them and sell them,” she said.

In recent years, the number of Californians with flood insurance policies has been declining in line with a national pattern. Experts attribute this in large part to the cost of premiums and, in particular, the increase in insurance rates that has occurred since October 2021 in accordance with the new FEMA pricing methodology called Risk Rating 2.0.

The National Flood Insurance Program, or NFIP, has long been struggled with debt, the result of worsening climate-induced disasters, combined with static insurance premiums. With a risk rating of 2.0, FEMA reassessed flood risk using independent models and then adjusted prices to better reflect today’s trends. The idea, according to the agency, was to make insurance fairerso that people in flood zones pay more according to their level of risk, and people outside don’t have to subsidize them. (The new maps did not affect who was to conduct the policy.)

The result, however, was slump policy. “We have seen a nationwide drop in the number of people covered by flood insurance. [for several years]said Nick WinZant, senior analyst at QuoteWizard, an online platform that allows customers to shop and compare insurance prices. “It really started to drop as soon as FEMA introduced a risk rating of 2.0.”

Although the state as a whole pay less under the new program than before, 73 percent of California policyholders saw price increases, in some cases as high as $100 a month. Between March 2021 and August 2022, 11 percent of government policyholders dropped the plan, according to VinZant, one of the biggest cuts in the country. (Nationwide, the program lost 6 percent of policyholders over the same period.)

FEMA doesn’t provide data on zip code-level policies in place, so it’s hard to confirm that the places where premiums have risen the most are the same places where people opted out of NFIP. But most experts believe that this is exactly what happened. “FEMA was very opaque. The numbers they gave were limited, so it’s hard to track them down,” said Nicholas Pinter, professor and associate director of the UC Davis Center for Watershed Science. “There are serious suspicions that the increase in premiums has led to an exodus from the program.”

Another exodus factor: multi-year megadrought drying up rivers and reservoirs in the western United States. As a general rule, the number of flood insurance policies increases after a flood and decreases in dry years when people forget the possibility of a flood. “Right now my phone is ringing,” Ramirez said.

FEMA is working on explaining the drought. “There are many factors that could be driving this decline in insurers, including the economic impact of the pandemic, inflation, the housing market, affordability, or purchasing flood insurance from the private market,” said David Morstad, FEMA Associate Assistant Administrator for Resilience, said Grist. in a statement. “For California in particular, [it may be] due to several years of drought in the area and the belief that flooding cannot affect them.”

Elliott believes that with the increasing frequency of floods and rising repair costs, it is unrealistic to expect the National Flood Insurance Program to operate as a private insurance company, charging enough to cover risks and break even losses while remaining affordable. In California, the average cost of this insurance is $779 per year, although rates vary by region. Research by Pinter and colleagues shows that in addition to a small number of coastal communities such as Malibu, which are high-risk and high-income, much of the state is prone to flooding in low-income areas.

The National Program is trying to encourage more flood-resilient building and planning by offering grants and lower rates to people and communities who are taking steps to protect their homes. But these investments can be costly, and the agency has been criticized for not providing enough support and accessibility. “We waited [the NFIP] to support the American dream of homeownership, and also expect it to signal risk, push people away from the water’s edge, and reduce overall exposure to flood risk,” Elliott said. “It’s always been very difficult to do all these things.” She says it would be better to see insurance as part of a larger strategy and set of policies to protect people from floods.

On Saturday, President Biden granted California Gov. Gavin Newsom a request for declaration of a major disaster in three counties, in accordance with state regulation declaration of emergency for 41 of 58 counties. Merced, Sacramento, and Santa Cruz are now eligible for temporary housing and home renovation subsidies, low-cost loans to cover uninsured property losses, and additional forms of support. Other counties may be added as officials continue to assess damages across the state.

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