Climate change is increasing flood risk around the country. Insurance rates are not keeping pace, report finds

If all of those property owners were to purchase flood insurance to protect against potential damage, premiums would need to increase by 4.5 times to cover the risk.

The study only considered residential properties with between one and four units, but the authors say the actual financial risk from flooding around the country is likely far greater than the report captures.

“Our numbers are large … but it’s not encompassing all properties that are inside the Special Flood Hazard Area, or many other residential properties like condos, apartment buildings and other larger buildings,” said Matthew Eby, founder and executive director of the First Street Foundation. “So if you take that and you extrapolate, there are actually a lot more buildings that have financial risk as well.”

Today, the 4.3 million homes with a 1% chance of flooding carry an expected annual loss of $20.8 billion due to flood damage, the foundation’s analysis found.

However, within the life of a 30-year mortgage signed today, those losses are projected to balloon by 61% to nearly $32.2 billion per year by 2050 due to the effects of climate change.

As massive storms like Hurricanes Katrina, Harvey and Sandy have hammered some of the country’s biggest coastal cities, the NFIP’s bottom line has already taken a beating.

“With climate change and more development and more properties at risk, it just keeps going further in the hole,” said Sandra Knight, a senior research engineer at the University of Maryland’s Center for Disaster Resilience and a former FEMA administrator. “That tells you you’re not collecting enough premiums, but the long-term game is to have zoning and building codes that minimize risk. You can’t just depend on insurance.”

Experts and even FEMA officials have acknowledged for years that there are shortcomings with the NFIP as it is currently structured.

Chief among those is the process of drawing FEMA’s flood maps, which provide the basis for setting insurance rates for many policies under the NFIP.

“It’s actually sort of a crude way to price flood risk because it doesn’t account for changing flood risk across a landscape,” said Carolyn Kousky, the executive director of the Wharton Risk Center at the University of Pennsylvania and a member of the advisory board for the First Street Foundation.

David Maurstad, the senior executive of the National Flood Insurance Program, said that the First Street Foundation’s findings should not be taken as a preview of the rate changes flood insurance policy holders can expect when Risk Rating 2.0 goes into effect.

“Any attempt to compare an outside entity’s premium estimates or premium recommendations to the Risk Rating 2.0 initiative is premature,” Maurstad said in an emailed statement. “FEMA is constantly working to leverage new technologies and provide national-scale flood risk information more efficiently, accurately and consistently to the public.”

Still, Kousky says that the new findings are an important indicator of just how much the cost of flood damage could grow around the country as the climate changes, which the cost of insurance in any single year does not capture.

“It certainly has shown how much flood losses are going to start increasing as a result of climate change,” she said. “That should be a red flag for the NFIP and communities everywhere that the cost of this risk are going up. And that means to stay solvent, insurance costs have to go up as well.”