But a reckoning is coming.
On Friday, the Federal Emergency Management Agency will incorporate climate risk into the cost of flood insurance for the first time, dramatically increasing the price for some new home buyers. Next April, most current policyholders will see their premiums go up and continue to rise by 18 percent per year for the next 20 years.
The price hike under a new assessment, Risk Rating 2.0, will more accurately reflect the threat of flooding in a changing climate, federal officials say.
Most homeowners will see modest increases starting at $120 per year in addition to what they already pay, and a few will see their insurance costs decrease. But wealthy customers with high-value homes will see their costs skyrocket by as much as $12,000 for one year. About 3,200 property owners — mostly in Florida, Texas, New Jersey and New York — fall in that category.
Like the climate threat, the cost increase will reach far beyond the coast.
Homeowners in inland states such as Iowa, Missouri and Nebraska, where creeks, streams and rivers overflow during heavy rains, will also see price increases in their government-backed flood insurance.
Climate change will affect people who weren’t threatened before. New technology that allows analysts to study the environs around each home led to a stunning find: 6 million homes in states such as Utah, Idaho, Vermont and Tennessee that didn’t require insurance because they were thought to be safe from flooding are actually at risk because of climate change.
Another 2 million homes across the country will fall into the risk group within 30 years as the climate changes, according to First Street Foundation, which developed the new flood-risk rating similar to the one used by FEMA.
“It doesn’t matter if you believe in climate change; your insurance company does,” said Nick VinZant, senior research analyst for QuoteWizard, a subsidiary of Lending Tree, the online mortgage company. “The realities of that are going to be reflected moving forward.”
One reason the old pricing had to go, VinZant and others said, was its inequity. FEMA generally assessed flooding risks to homes based on zones, so that people with lower-value homes paid about the same rate as wealthy people with high-value homes.
Moderately priced homes were overinsured and million-dollar mansions were underinsured. In a nutshell, middle-income policyholders were helping to subsidize the rich.
“It is now going to say if you’re in a risky place, you’re going to get charged more for it, and other people aren’t footing the bill,” VinZant said.
Homeland Security Secretary Alejandro Mayorkas said in April that Risk Rating 2.0 “aligns with the Biden administration’s priority to … tackle the effects of climate change and eliminate inequities in the delivery of federal programs.”
But it’s unclear how long Risk Rating 2.0 will survive. Wealthy policyholders in coastal states are complaining, and members of the House and Senate are listening.
In the Senate, Majority Leader Charles E. Schumer (D-N.Y.) sought to extend the current system by another five years. In the House, Rep. Charlie Crist (D-Fla.) led a bipartisan group in demanding changes to the increases.
Thirty-eight members signed a letter in September expressing their concern over “the burden of potential double digit rate hikes on our constituents” and asked for a delay. Congress can pass legislation that could derail the price increase. (Only three of the signees represent landlocked states.)
Congress has increased flood insurance rates before, in 2012. But it reversed those increases two years later after some communities protested.
Flooding is the most common and costly type of natural disaster in the United States. A 2017 report by the Union of Concerned Scientists said 170 coastal communities will face chronic flooding — at least 26 times a year — in the next two decades. That’s twice as many at-risk locations as today.
More than 5 million people have government-backed flood insurance, which provides $1.3 trillion in coverage in 22,550 communities across the United States. As of last year, the National Flood Insurance Program (NFIP) run by FEMA was $20 billion in debt from massive payouts to customers.
Officials at the NFIP started talks about a new pricing structure in 2015, said Roy Wright, a former executive director of NFIP who currently directs the Insurance Institute for Business and Home Safety.
FEMA knew that its analog process of assessing risk was outdated, well behind private insurers who were using digital tools.
“Frankly, the system was circa 1986,” Wright said. “So much in the insurance world had matured and grown, and they were still using that old model. It’s like driving a 1986 Buick. It drives, it goes from Point A to Point B, but it could be kind of clunky.”
Wright was given a mandate: Modernize the way the NFIP prices risk and stop overcharging people with moderately priced homes. As the program studied its model over several years, climate change emerged as another issue.
Risk Rating 2.0 moved forward after the NFIP ditched its old model and replaced it with a new technological model developed by its own actuaries and a consultant group that allows analysts to study the topography around every home.
In addition to making pricing more equitable, it is also meant to send a message, said David Maurstad, senior executive of the NFIP: Moving near oceans, lakes and rivers is extremely risky and costly at a time when rainstorms are more powerful and flooding is unprecedented.
Since 1960, nearly 50 million Americans have settled into homes near the Atlantic, Pacific and Gulf of Mexico — a 150 percent population increase, doubling the growth rate of the nation as a whole.
Home building on the Gulf Coast is booming, with more than 8 percent of people employed in construction compared with 6 percent nationally. More expensive flood insurance puts that fevered growth at risk.
“You can see people looking at houses now and saying, ‘You know what, this house that’s right next to this flood zone is now unaffordable to me because of the flood insurance,’” VinZant said.
Brian and Susan Gary’s mortgage lender required them to carry a $10,000 annual flood insurance policy with a $250,000 deductible for their 1952 single-family home in Palm Beach, even before the new FEMA pricing.
To avoid paying more, the Garys bet their house. “We realized it would be less expensive to pay off our mortgage, so we no longer have flood insurance,” Susan Gary said.
The Garys know that sea level rise is a danger. They have worked to raise awareness about it, but they can’t afford to protect themselves from it.
“We pray we don’t get flooded, [but] if our house is completely ruined, we would sell the property and have to move, because rebuilding here on Palm Beach, with all of the restrictions and everything, we probably wouldn’t have the resources.”
Nearly 1,500 miles north in Iowa, Jon Green winced when he saw the potential new flood insurance cost for an eight-acre, $289,000 farm he wants to buy outside Des Moines near the Iowa River.
“The regular property insurance is going to be about $1,800 a year,” Green said, “and the quote that we have for flood insurance is $2,614 per month.”
Green expects to close Oct. 22. He keeps studying FEMA’s flood maps for the area, hoping for a break. The current map places the farm in a 100-year flood plain.
“Honestly … $2,614 is a big premium,” Green said.
Climate change has hit Iowa almost as hard as Palm Beach. Temperatures in the Midwest are about 1.3 degrees Fahrenheit warmer than they were in the late 1800s, increasing atmospheric water vapor and heavy rains, said Justin Glisan, an Iowa state climatologist.
Iowa’s second-wettest year was 2018, followed by the 12th-wettest in 2019, Glisan said. Together they accounted for the wettest back-to-back years in nearly a century and a half. Record flooding has become a fact of life.
“We’re more inclined to have higher-intensity, more frequent thunderstorm-driven rainfall” because of climate change, Glisan said.
The impact of global warming is showing up in the data.
When First Street launched its new technological tool in June 2020, it discovered 6 million new at-risk properties that FEMA’s outdated models had missed.
“That’s because our model uses precipitation flooding and a few other techniques that FEMA flood models do not,” said Matthew Eby, the group’s executive director.
First Street also discovered that 2 million additional homes that aren’t threatened now will fall into the flood-risk category over the next 30 years. “You can think your home is fine because it doesn’t have the risk, but as the climate changes, that’s what the data shows,” Eby said.
Using the new technology, analysts at QuoteWizard found millions of potential new flood insurance customers in unlikely places.
According to QuoteWizard, the list of homes in Utah that are at risk of being damaged by rains grew by 91,000, a 416 percent increase from what was previously known. Wyoming’s 27,000 additional homes represent a 325 percent increase, and Montana’s 92,000 additional homes represent a 311 percent increase.
“Not only are we seeing rates change,” VinZant said, “but the number of people who should have flood insurance is astronomically higher than what it is now. It’s crazy, man. It’s unbelievable.”
A report in September by the Mortgage Bankers Association cited mortgage default risk due to rising interest rates, higher housing prices, new regulations on home construction and climate migration among the potential financial impacts posed by climate change.
First Street’s mission is to assess climate impacts on Americans. In recent years, it brought together academics at the Massachusetts Institute of Technology, Rutgers University and other schools — about 80 people in all — to design a new tool to assess risk related to the changing climate.
The idea, Eby said, was to create one nationally available flood model “with a high enough resolution that we can calculate statistics for each individual home, well beyond FEMA’s capabilities.”
It worked because First Street wasn’t interested in developing a secret formula that it could sell. “We embrace an open-source methodology, and we put everything in the peer-review process,” Eby said.
First Street never worked directly with FEMA, but it presented its model to the agency’s technical committee shortly before the agency made plans to implement Risk Rating 2.0.
In Palm Beach, Bob Holuba said he’ll be fine.
The $5 million house he bought in 2010, now worth $13 million, is fully insured. It sits away from the beach, but near the Lake Worth Lagoon, about seven feet above sea level.
“I never expect to pay less,” Holuba said.
The investor paid $100,000 to replace a sea wall when Hurricane Irma flooded his yard in 2017. His homeowner’s insurance shot up by 25 percent this year — to nearly $50,000 a year. It covers flooding, he said.
“I think the government is doing the right thing, from a policy standpoint,” Holuba said.
Palm Beach’s wealthy can afford the price hike.
If flooding completely destroyed his home, Holuba said, he would just rebuild from scratch.
Lori Rozsa reported from Palm Beach, Fla.