Flood Insurance: Are Federal Interventions Needed to Protect Californians?
As we enter fire season, the contracting marketplace for insuring homes against wildfires is likely top of mind for many California homeowners.
Unfortunately, this winter’s heavy rains have brought an additional insurance specter to Californians’ doorsteps: the subsequent flooding caused over three billion dollars of damage throughout the state and less than two percent of California homeowners have flood insurance.
The reasons for this low take-up rate are multifaceted and include affordability, information access, and the fact that FEMA’s pre-2021 flood risk rating system may have convinced homeowners that they didn’t need flood insurance. Thousands of Californians recently discovered otherwise, including many of the state’s most economically vulnerable residents.
How can we encourage more residents to purchase flood insurance?
Carlos E. Martin is the Rubenstein Fellow at the Brookings Institution and Remodeling Futures Project Director at the Harvard Joint Center for Housing. He’s studied housing technology and disaster mitigation for 25 years. This March, he traveled to Capitol Hill and testified before Congress, outlining flood insurance problems and solutions for the Subcommittee on Housing and Insurance of the Committee on Financial Services.
Martin believes aggressive federal intervention is needed to ensure that homeowners as well as renters have the information and means to protect themselves from flood damage. “Having sufficient resources after a flood is associated with better physical and mental health and financial stability for families,” he wrote in the background to his testimony, referencing findings from post-disaster studies from the J.P. Morgan Chase & Co. Institute.
Martin began his testimony with an overview of the history of flood insurance in the United States, which included the founding of the National Flood Insurance Program in 1968, the only federal program for insurance of last resort. The NFIP provides flood insurance and restricts development in floodplain areas. Due to the escalating costs, incurred primarily by hurricane-related damages, the premiums from the program are not able to pay for its claims. The NFIP is currently over 20 billion dollars in debt. Its financial precariousness underscores the urgency of bringing new purchasers into the pools as well as expanding private insurers’ presence in the flood insurance industry. Martin identified six challenges to flood insurance adoption and their proposed solutions:
1. Martin identifies unaffordability as the most significant obstacle to flood insurance take-up. A federal payment assistance program for the most vulnerable properties would not only protect consumers, but it could also contribute to the financial stability of the NFIP.
2. At present, consumers have few sources for easy-to-understand information on their homes’ flood risk. Martin suggests the creation of information depositories and better disclosure guidelines to make this information more accessible, especially for renters, who are often left out of the flood insurance conversation.
3. As flood risks evolve, Martin believes it’s imperative that requirements for purchasing flood insurance are more carefully updated. He advocates for federal monitoring of requirement updates published by local governments and lenders.
4. Confusion abounds regarding what is and isn’t covered in homeowners’ flood insurance policies. A consumers’ “bill of rights” for flood insurance could ensure that homeowners know exactly what their coverage does and doesn’t provide in the event of flood damage.
5. Mitigation programs have been historically underfunded. An increase in federal funding of structural and property mitigation, including buyouts for extremely vulnerable properties, would not only protect consumers but could also make the flood insurance market more attractive for private insurers.
6. Finally, the lack of open data on existing flood insurance policies makes it difficult to accurately measure a “host of critical indicators,” such as pricing, coverage types, and claims payouts. Martin advocates for national reporting requirements (like those the mortgage industry abides by) to ensure that the industry can be accurately studied.
Martin believes that these policies would benefit all flood insurance providers as well as consumers in vulnerable areas. But while improved federal standards will certainly help Californians, we must be proactive in studying and planning for the unique flood risks our residents face. Professor Nicholas Pinter, who researches watersheds at UC Davis, told the Los Angeles Times that “California needs to be prepared for even bigger events and that requires far more investment in flood defenses and more awareness of flood danger.”
To learn more, read Carlos Martin’s testimony to Congress as well as background information on each of his suggestions here. You can also view the California Department of Water’s Flood Insurance Quick Guide here and the non-profit Grist’s overview of California’s flood risk.
Photo by Kelly Sikkema