Rising flood risks and declining insurance: Why homeowners need to act now

As climate change intensifies extreme weather events, flooding has become an increasingly severe and frequent threat to homeowners across the United States. Despite this growing risk, fewer Americans are protected by flood insurance, leaving many vulnerable to catastrophic financial losses. This article explores the rising flood risks, declining insurance coverage, and what homeowners can do to protect themselves.

Flooding is already the most common and costly natural disaster in the United States, causing billions in economic losses each year. According to the Federal Emergency Management Agency (FEMA), 90% of all natural disasters in the United States involve flooding.

Climate change is exacerbating flood risks in several ways:

More intense rainfall: Rising global temperatures are making rainfall more frequent and severe across most parts of the world.

Sea level rise: Coastal flooding is becoming more common as sea levels increase.

Changing weather patterns: Shifts in precipitation patterns can lead to more extreme weather events.

The impacts are already being felt. In 2023, one-third of Europe's river network saw flows exceeding "high" flood thresholds, and 16% exceeded "severe" levels. In the United States, 2024 is currently the fourth-costliest year in terms of severe thunderstorm losses, with over $34 billion in insured losses.

The Insurance Gap

Despite the growing threat, flood insurance coverage in the United States is alarmingly low. The National Association of Insurance Commissioners estimates that between 85% and 95% of homeowners don't have flood insurance.

This gap in coverage is partly due to a common misconception: many homeowners believe their standard insurance policies cover flood damage. However, flooding is generally not covered by homeowners insurance. Damage caused by flooding requires a separate flood insurance policy, typically through the National Flood Insurance Program (NFIP) or private insurers.

The Wall Street Journal reports a concerning trend: "The number of Americans with flood insurance is declining even as climate change increases the risk of flooding and the cost of rebuilding after disasters." According to FEMA data, the number of NFIP policies in force has dropped by about 10% since 2020.

Why Fewer Homeowners Are Insured

Several factors contribute to the decline in flood insurance coverage:

Cost: Flood insurance premiums can be expensive, especially in high-risk areas. The average cost of flood insurance is $859 a year from the NFIP.

Risk perception: Many homeowners underestimate their flood risk, especially if they don't live in designated flood zones.

Policy changes: FEMA's new Risk Rating 2.0 system has led to premium increases for some homeowners, potentially discouraging coverage.

Lack of awareness: Some homeowners may not realize that their standard policies don't cover flood damage.

Mortgage requirements: Only homeowners with federally backed mortgages in high-risk flood areas are required to have flood insurance.

The Consequences of Being Uninsured

The lack of flood insurance can have devastating financial consequences for homeowners. Even a small amount of water can cause significant damage. FEMA estimates that just one inch of water can do as much as $25,000 in damage to a home.

Without insurance, homeowners may have to rely on federal disaster assistance, which is often insufficient to cover the full cost of repairs. FEMA grants for individuals are capped at $36,000, and the average payout is much lower.

Who Needs Flood Insurance?

While those in high-risk flood zones are most vulnerable, flooding can occur anywhere. According to FEMA, 99% of counties in the United States experienced at least one flood event between 1996 and 2019.

The risk of flooding is growing in many regions of the country that have not traditionally been regarded as high risk. This includes inland regions that are located a significant distance from the beaches. The implication of this is that homeowners who do not reside in flood zones that have been designated should nonetheless consider purchasing flood insurance.

The Cost of Flood Insurance

The cost of flood insurance varies widely depending on several factors:

Location: Homes in high-risk flood zones typically have higher premiums.

Home characteristics: The elevation of the home, number of floors, and other structural features can affect rates.

Coverage amount: Higher coverage limits result in higher premiums.

Deductible: Choosing a higher deductible can lower monthly premiums.

According to FEMA data, the average annual cost of flood insurance ranges from $593 in Nevada to $1,491 in Connecticut.

FEMA's Risk Rating 2.0

In 2021, FEMA introduced a new pricing methodology called Risk Rating 2.0. This system aims to provide more equitable and actuarially sound rates based on individual property characteristics rather than broad flood zones.

Under Risk Rating 2.0, some homeowners have seen significant premium increases. FEMA data shows that the average flood insurance cost increase under the new system is 86%. However, about 1.15 million policies are expected to see a decrease in premiums.

Private Flood Insurance Options

While the NFIP has traditionally dominated the flood insurance market, private insurers are increasingly offering flood coverage. In 2023, net premiums written for private flood insurance totaled $803.1 million, up 3.7% from 2022.

Private policies may offer higher coverage limits and potentially lower premiums for some homeowners. However, it's important to carefully compare policies, as coverage and terms can vary.

Protecting Your Home from Flood Damage

In addition to insurance, homeowners can take steps to reduce their flood risk:

Elevate important systems: Raise electrical panels, heating systems, and other critical components above potential flood levels.

Install backflow valves: These can prevent sewage from backing up into your home during a flood.

Use water-resistant materials: When renovating, choose materials that can withstand water exposure.

Improve drainage: Ensure proper grading around your home and maintain gutters and downspouts.

Create a disaster plan: Have an emergency kit and evacuation plan ready in case of flooding.

The Future of Flood Risk and Insurance

As climate change continues to increase flood risks, the insurance landscape is likely to evolve. Some potential developments include:

Increased private market participation: More insurers may enter the flood insurance market, potentially offering more competitive rates.

Improved risk assessment: Advanced modeling and data analytics may lead to more accurate risk pricing.

Policy changes: Governments may introduce new regulations or incentives to encourage flood insurance uptake.

Adaptation measures: Communities may invest more in flood mitigation infrastructure to reduce overall risk.

The increasing threat of flooding, coupled with declining insurance coverage, presents a significant challenge for homeowners and policymakers alike. As flood risks continue to rise due to climate change, it's crucial for homeowners to understand their risk and consider flood insurance, even if they don't live in designated high-risk areas.

While the cost of flood insurance can be significant, the potential financial devastation of an uninsured flood event far outweighs the expense of premiums. Homeowners should carefully assess their flood risk, explore both NFIP and private insurance options, and take steps to protect their properties from flood damage.

As we navigate an increasingly flood-prone future, a combination of insurance coverage, risk mitigation strategies, and community-level adaptation measures will be essential to building resilience against this growing threat.