Big, potentially costly changes coming for national flood insurance program

Flood events in Lafayette, especially the devastating floods of 2016, have LCG moving quickly to address residents' concerns ahead of the next big storm. But questions remain about how much benefit the tens of millions it is spending will have. Photo by Travis Gauthier

The gist: FEMA will soon announce an overhaul in how it calculates flood risk. The changes, first reported by Bloomberg, could increase premiums, lower property values and change public perception.  

How this works, oversimplified. Right now, you’re either in a flood zone or you’re not, and premiums are calculated accordingly. Under the new FEMA rules, called Risk Rating 2.0, risk will be calculated on an individual basis, drawn from commercial data, and take into account more flooding causes, like intense rainfall and flash flooding, the primary culprit for the 2016 floods. For some homeowners, that means premiums could go up. For others, premiums could go down. Here’s how a 2018 FEMA document, obtained by Bloomberg, explained it:

The document offers the example of two homes in a 100-year flood plain. The first home, at the edge of that zone, faces low risk of flooding from inland flooding or storm surge; the second faces higher risk from both. Under the current system, each home pays the same premium; with the changes, the first home’s premiums would fall by 57 percent, while premiums for the second home would more than double.

It will have big implications for real estate, for property values, your over under for whether you’ll develop a certain piece of land or how you build on that land,” Justin Kozak tells me. Kozak, a policy researcher at the Center for Planning Excellence, says it’s hard to predict the scale of the economic impact without knowing more of the details and cautions against viewing the change as a silver bullet for addressing disaster vulnerability.

17,000. That’s the total number of National Flood Insurance Program policies in Lafayette Parish, according to FEMA. There are 8,000 in the city and close to 5,500 in the unincorporated area.

Keep in mind that homes outside of flood zones were hit in 2016. Lots of them. Of 10,000 FEMA claims made related to the 2016 floods, half were not in a 100-year flood zone. And those figures cover only claims studied inside LCG’s drainage initiative.

The changes are intended to right-size the NFIP, which has been underwater for a while. The flood insurance program was $30 billion in debt in 2017. Hard hit by a series of hurricanes and flood events, the program has often paid out more in claims than it generates in premiums. Climate advocates have cheered the overhaul, saying it more accurately and precisely addresses the risks and costs associated with climate change. Pushback could come from home builders and homeowners given the new approach could increase costs and lower property values.

“We’ve built ourselves into a very risky situation,” Kozak says.

Changes would take effect in 2020, assuming they aren’t derailed politically. The Gulf South will be among the first to see them. FEMA is expected to formally announce the changes Monday.