Resilience Natural Disasters

Rising rates lead hundreds of thousands to drop FEMA flood insurance: report

A new analysis from E&E News details the extent to which policyholders have forgone federal flood insurance thanks to a new rating model.
An aerial photo of New Orleans neighborhoods flooded following Hurricane Katrina in 2005.
An aerial photo, taken Sept. 10, 2005, shows the extent of flooding in New Orleans, Louisiana, after Hurricane Katrina hit the region. The Associated Press/ David J. Phillip

Story at a glance

  • Few Americans currently have flood insurance, while many private companies are hesitant to offer coverage due to the devastating costs of flooding.

  • This means many individuals receive coverage through the Federal Emergency Management Agency’s National Flood Insurance Program.

  • But a restructuring of this program in 2021 saw rates rise for households, resulting in a nearly 9 percent decrease in individuals covered as of June 2022.

Changes at the Federal Emergency Management Agency (FEMA) carried out in 2021 have resulted in hundreds of thousands of residents forgoing the agency’s flood insurance, even as the United States faces the threat of more extreme weather events thanks to climate change. 

The decline in coverage was revealed by an E&E News analysis of FEMA policies. In October the agency overhauled, its National Flood Insurance Program (NFIP) and raised rates to outline risks posed to certain properties.

In June of 2022 4.54 million individuals were covered, compared with 4.96 million in September of 2021, marking a nearly 9 percent decline. 

The overhaul, dubbed Risk Rating 2.0, implemented new premium rates in October for new policy holders only, while new rates for existing NFIP policyholders took effect in April 2022. The update marked the first major rating structure shift since the program’s inception in 1968. 

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Although the intention of the change was to encourage purchasing insurance by highlighting these risks, since that time, over 450,000 individuals have discontinued their flood insurance, potentially leaving them financially vulnerable to damage, E&E found.

For some individuals, the threat of higher premiums prompted them to let their policies expire; however, for properties where rates were too high, the agency did lower premiums. 

Flood insurance can be hugely beneficial to homeowners, as, according to FEMA, “just one inch of floodwater can cause up to $25,000 in damage,” and most homeowner insurance does not cover flood damage. 

As of March 2022, the program remained “the nation’s largest single-line insurance program providing nearly $1.3 trillion in coverage against flood,” FEMA’s website reads. 

Some speculate this new lack of coverage opens the door for private insurers to market to at-risk populations, although it remains unclear how many uncovered individuals went on to purchase private plans in the interim. Many private companies have avoided offering flood insurance in the past due to the high costs posed by flood damage. 

In response to the coverage decline, FEMA spokesperson Jeremy Edwards stated, “there are many factors that could influence this drop in policyholders, including the economic impact of the pandemic, inflation, the housing market, affordability or purchasing flood insurance from the private market.”

“We remain confident that policies will increase, over time, under our new Risk Rating methodology,” Edwards continued. 

The vast majority of U.S. households do not have flood insurance while those who stand to benefit most from coverage are largely unable to afford it

In Louisiana, a state that suffered extreme flood damage following Hurricane Katrina in 2005, coverage rates declined by 8.5 percent in the window studied. 

As a result, U.S. Sen. John Kennedy (R-La.) told E&E News Risk Rating 2.0 “is already costing Louisianans their flood coverage” and is “robbing Louisiana families of the flood protection they need for their homes.”