Flood Insurance

FEMA Flood Maps are All Wet - They Don't Consider Climate Change

November 2, 2010 16:52
by J. Wylie Donald
Last week brought another edition of the Flood Insurance Rate Maps. FEMA announced on October 29 that it was releasing new preliminary flood maps for Montgomery County, Maryland. Click here.  It has been 14 years since the last flood plain map was created and the good citizens have seen substantial changes in that period. Montgomery County's planning arm sets forth in its 2007-2009 report that the population has boomed over the last thirty years with an anticipated increase of 14% this decade, the fastest growing in Maryland. Click here. The effect of all this growth is telling. "Several factors—including sustained job and population expansion, declining supplies of greenfield space, and land use policies favoring in-fill and transit-oriented development—have reinforced this pattern of concentrated development in recent years. Growth, density and mixed-used development are transforming former commuter suburbs into increasingly more urban-like environments." So with all that change, re-doing the flood plain maps is necessary, and overdue. Unfortunately, these maps are outdated even as they are issued. This is not simply because additional development affects them. It is because they do not consider climate change. This bears repeating. The FEMA flood maps do not consider climate change. And it is not just some blogger saying it. The Delaware River Basin Commission wrote in 2009: "Future development and the impacts of climate change are not taken into account during the development of FEMA flood hazard area mapping." Click here. Why is this significant? One of the fundamental predictions of climate scientists is that climate change is going to deliver more extreme weather. In the Northeast, for example, there will be more frequent storms and more severe storms. It should be obvious that these will increase the frequency of flooding and the 100-year flood will now become the 50-year flood or the 25-year flood. As most know, the FEMA flood map shows the 100-year flood plain. Inside the flood plain, certain construction requirements are imposed, and flood insurance is required of all who would be involved in federal programs (such as loan guarantees from Fannie Mae or Freddie Mac). Outside the 100-year floodplain, neither condition applies. Accordingly, if the 100-year floodplain is inaccurately set forth, numerous properties just outside the erroneous line are more likely to be subjected to a flood than the occupant or owner anticipates, and are more likely not to have flood insurance. If this sounds like a recipe for disaster, it is. The spring floods in Nashville caused over $1 billion in damage. FEMA reported only 100 National Flood Insurance policies in the the entirety of Davidson County (where Nashville is located).1  Why so few? Because no one believed they were in the flood plain. This mentality is only going to get worse, particularly if FEMA publishes flood maps without pointing out that it is ignoring an undeniable substantial factor: climate change.       1 Jeff Casale, Significant losses expected after floods soak Nashville, Business Insurance (May 10, 2010).

Climate Change | Flood Insurance | Weather

Remember Hurricane Wilma? The Damage is Still Not Paid For

March 7, 2010 18:15
by J. Wylie Donald
There was scary news out of Florida at the end of last month. Insurers were lobbying the cabinet for an increase in catastrophe fund insurance policyholder fees. This is the surcharge Florida regulators place on every automobile and property policy to pay for the Florida Catastrophe Fund, which needs up to $710 million to pay for 2005 (sic) claims that are still coming in. The Fund managers sought to increase the current surcharge from 1% to 1.3% of premiums. The increase was rejected by the Florida cabinet, ostensibly because of concerns over fraud. Seems public adjusters in Florida are too effective and have precipitated an unbudgeted increase in payouts from the Fund. The explanation for the increase in claims and payouts is that fraud is being carried on. Cynical observers cite a different reason. Governor Crist is running for the Senate and is not going to be tagged with increasing the cost of insurance. Whatever the reason, what should really be cause for concern is that the Fund may need an additional $710 million. I have blogged repeatedly and skeptically on the beach pools and wind pools. Turns out I am not alone. Zurich Insurance Company published a White Paper last summer that makes the point far more eloquently than I did.   In The Climate Risk Challenge: the role of insurance in pricing climate-related risks, http://www.zurich.com/main/insight/introduction.htm, Zurich posits that in addressing climate change, there is a great need to engage the insurance industry's skill in managing risk. The trick is how to engage an industry whose business is protecting private assets, so that that protection furthers the public good. Zurich points out that this has been done before. Fire protection codes and vehicle safety requirements are two areas of note. Following along in that vein, climate-friendly requirements that are built into zoning and building codes, such as hurricane-proofing structures, mandating energy efficiency, and restricting construction in flood -prone areas, can be supported by insurance products, which will bring market forces into play. However, as Zurich notes, "The ability of the insurance industry to assist public policy-makers in the effective and efficient implementation of climate change policy is to a large extent dependent on [policymakers'] willingness to resist the temptation to distort markets in a manner that interferes with the role of and ability of insurers to send price signals about risk." Distortion seems rampant in Florida. In the fifth year after Hurricane Wilma, the Florida Catastrophe Fund still lacks sufficient funds to pay for those claims. Perhaps more significantly, the procedure in place to pay for those losses cannot do so. Zurich's tag-line is "Because change happenZ." I would amend that. "Because climate change is happening." Policymakers need to tap into the experts who manage the balance between risk exposure and financial sustainability. Until the Florida insurance market reflects true price signals for risk, those experts are very likely to remain sitting on the sidelines and Florida's hurricane risk effectively uninsured.

Climate Change | Flood Insurance | Insurance | Weather


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