Big flood insurance rate changes are coming to NC. Will they be fair?

Climate change denial isn’t just the domain of recalcitrant contrarians. It’s baked into the way the risks and costs of flooding are calculated in North Carolina and around the nation.

Government-backed flood insurance – often the only option for homeowners along the coast and near rivers – is based on outdated flood maps that fail to reflect how climate change is increasing the regularity and scale of flooding. Those maps have skewed insurance rates downward and left wide swaths of land where properties should be insured against flooding but are not.

Fortunately, that’s about to change. The National Flood Insurance Program (NFIP) managed by the Federal Emergency Management Agency (FEMA) is preparing to unveil the sweeping changes in assessing flood risk and setting insurance rates. The new approach, called Risk Rating 2.0, will begin Oct. 1.

In North Carolina, with its long coast and many flood-prone areas within its coastal plain and mountain region, the changes will have a major impact. There will be a shift in rates – higher for some, lower for others – and more accurate risk assessments could show more property owners that they need protection against flooding.

NFIP rates will no longer be based on zones. Instead properties will be individually rated depending on updated weather patterns and individual aspects of a specific property. Amanda Bryant, director of the website myfloodrisk.org, said that will mean higher rates for more vulnerable homes. “The new risk assessment will show the majority of coastal properties in North Carolina are at more risk,” she said.

Former North Carolina insurance commissioner Wayne Goodwin said the rate increases come after Congress has long postponed setting premiums high enough to cover the actual risk. “The longer you wait to correct something, the greater the pain and that’s what’s happening here,” he said.

FEMA is not saying yet how much the new risk assessment will drive up rates and when. Annual premium increases are capped by law at 18 percent, but the escalation over time could change who can afford to live in coastal areas. An analysis by the First Street Foundation, a non-profit that assesses flood risks, projects that some properties could face massive rate hikes.

The predictions of rate shocks for expensive homes should not obscure that the changes will benefit owners of more modest homes, said Don Hornstein, a University of North Carolina law professor who specializes in insurance law. The current system sets rates too broadly, he said, and that leads to lower-income homeowners subsidizing the cost of flood insurance for higher-income homeowners.

Hornstein said the rate changes are “going to fix that by eliminating these cross subsidies that go the wrong way.” As a result, he said, more homes will get price decreases than price increases.

But also more homes should get flood insurance.

“Climate change is indeed driving the flood risk up for everyone,” said Rick Luettich, director of the Center for Natural Hazards Resilience at the University of North Carolina at Chapel Hill.

Luettich, who develops flooding models, said the new risk assessments will be helpful to homebuyers. “There’s an aspect of it being good news if you have a better understanding of what the hazard level is and you can make a better decision about whether you want to live there,” he said.

Meanwhile, North Carolina Insurance Commissioner Mike Causey sees an option to higher federal flood insurance rates. He is pushing to have private insurers get back into the flood insurance business they fled in the 1960s, necessitating the creation of the NFIP.

Causey said during a meeting with Carteret County officials last year that private insurance policies could be “far superior to anything under the federal program.” He also wants more homeowners to buy flood insurance regardless of whether they are in a designated flood zone.

“My message to everybody is if it rains where you live, you need flood insurance,” he said “We’re all in a flood zone, it’s just a matter of whether you’re in a high-risk flood zone or low risk.”