Home ›› 17 Oct 2021 ›› World Biz
Frank Romero hasn’t faced a major flood in years but he nearly lost his home all the same - a victim of substantial insurance premiums for living in a designated risk area.
The New Mexico retiree, who still works as a locksmith, racked up a bill of almost $50,000 then junked his policy with the federal government’s insurance program when he faced a renewal rate of more than $11,000 a year.
“A $600 jump in your mortgage is no fun, especially when it’s all going to pay the flood insurance - which is not going to protect anything,” he told the Thomson Reuters Foundation by phone. “Every month it was a mountain that I had to overcome.”
Amid worsening climate-fuelled floods, the Federal Emergency Management Agency (FEMA) is overhauling its insurance rules to better reflect the real risks facing homeowners like Romero.
An overhaul makes sense - and is long overdue - given climate-shifted weather patterns.
But lawmakers call the new scheme an “actuarial death spiral” that won’t fix long-standing inequities in the National Flood Insurance Program (NFIP).
“People are going to be shocked at the impact it’s going to have on insurance rates,” said US Sen Marco Rubio, a Florida Republican.
The updated system, applied to new policies from this month, is intended to weigh flood-related factors well beyond a home’s elevation – currently the key metric for determining risk.
The new system also applies to policies that renew on or after April 1, 2022.
“(It) eliminates inequities ... where policyholders with lower-value homes are subsidizing premiums of policyholders with higher-value homes and higher risk,” David Maurstad, senior executive of the NFIP, said in a statement to the Thomson Reuters Foundation.
The new system factors in the type and frequency of floods, a property’s proximity to water and the cost of any rebuild. FEMA estimates two in three existing policy holders will see an average premium increase of up to $10 a month and about a quarter will see immediate decreases.
Premium changes would continue until the new “risk rate” is fully realized. FEMA estimates that about 50 per cent of policies will hit that mark after five years and about 90 per cent will reach it at 10 years.
US residents in high-risk areas with federally-backed mortgages are required to carry flood insurance.
The NFIP covers about 5 million policy holders, collectively totalling about $1.3 trillion in coverage.
The new system is a step forward – though it fails to force people living outside designated flood threat zones, but who could still be at heightened risk, to buy insurance, said Nalan Senol Cabi, an expert in the field.
