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Shrinking Federal Subsidies Could Cause Flood Insurance Costs to Soar

New York City

Flood insurance, Federal Emergency Management Agency, co-ops and condos, Hurricane Ida.

Submerged cars in New Brunswick, N.J., after Hurricane Ida hit in early September.

Sept. 24, 2021

Many of the people who own homes, including co-ops and condominiums, near New York City's 500 miles of waterfront or in flood-prone inland areas just got some unwelcome news. Starting Oct. 1, federal subsidies for flood insurance will begin to disappear in a nationwide experiment to force Americans to pay something closer to the real cost of their flood risk, The New York Times reports. That risk is rising as the planet warms and flooding worsens, as evidenced by the deaths and damage inflicted earlier this month by Hurricane Ida. For some homeowners, the change in federal subsidies will result in a tenfold increase in premiums.

"This is big news," says Jason Schiciano, co-president of the brokerage Levitt-First Insurance. "There are going to be fewer private carriers willing to offer flood insurance, and there will be continued restrictions on their coverage limits."

Schiciano notes that owners of single-family homes will be especially hard-hit, since co-ops and condos can share the rising cost among many residents. "Flood insurance for condominiums is far more expensive than it is for co-ops," he adds, "but most multi-family buildings will still be able to afford coverage." Some buildings in high-risk flood areas rely on federally subsidized insurance combined with policies from private carriers.

Created by Congress in 1968, the National Flood Insurance Program is the primary provider of flood coverage. The program is funded by premiums from policyholders but can borrow money from the federal treasury to cover claims. The average annual premium is $739. Until now, the Federal Emergency Management Agency (FEMA), which runs the program, has priced flood insurance based largely on whether a home is inside the so-called 100-year flood plain, land expected to flood during a major storm.

The result has been a program that subsidizes wealthier coastal residents at the expense of homeowners further from the water, who are more often people of color or low-income. That masking of true costs has also increased demand for houses in high-risk areas. As climate change makes flooding worse, using public money to underwrite waterfront mansions has become increasingly hard to defend.

In 2019, FEMA said it would instead price flood insurance based on the particular risks facing each individual property, a change the agency called “Risk Rating 2.0.” After a delay by the Trump administration, the new system takes effect next month for people purchasing flood insurance. For existing customers, rates will rise starting next April.

The change has won applause from a grab bag of advocacy groups, including climate resilience experts, environmentalists, the insurance industry and the budget watchdog group Taxpayers for Common Sense.

But all four U.S. Senators from New York and New Jersey – two states especially hard-hit by Hurricanes Sandy and Ida – have joined five other senators from both parties in protesting the coming changes. “We are extremely concerned about the administration’s decision to proceed,” the senators said in a letter to FEMA administrator Deanne Criswell.

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