Schumer pushes back on FEMA flood insurance overhaul

Dr. Ed Kearns, First Street Foundation Chief Data Officer, joins Yahoo Finance’s Kristin Myers to discuss the push back from Senator Chuck Schumer on the changes in flood insurance rates.

Video Transcript

- Federal flood insurance rates are being adjusted to more accurately reflect the risk that Americans are facing from floods. Now that means that many folks living in flood prone areas will experience rate hikes. But the rate changes would also discourage continued development and building in these vulnerable areas, and that would overall reduce the risk that many Americans are facing from floods. And what may be surprising to some is that Senate Majority Leader Chuck Schumer, again, a Democrat, is opposing the move.

So let's chat more about this with Dr. Ed Kearns, First Street Foundation chief data officer. So I tried to give a pretty brief overview there of what's happening here, but I do want to back up a little bit and lean in on your expertise. And how badly does this system that we have need an overhaul? I was seeing that right now the rates are based off a 100-year-old flood plain, which seems a little bit outdated for right now.

ED KEARNS: Yeah. So the methodologies that the current insurance rates are based on, they include today's [INAUDIBLE] and looking backward. They don't really consider what's going forward with climate change. And so there's a number of property-specific risk-based methodologies that can be employed, and that's what we're trying to do at First Street Foundation, which is a nonprofit. We're dedicated to putting the science and putting the data out there to help with this whole process.

- So how much do you think-- how big of these hikes do you think a lot of Americans might face if they find that their home is in a flood-prone area now that these premiums are actually attached to their actual risk that they're going to be facing?

ED KEARNS: Yeah. So we don't have yet any insight into what FEMA is going to do. But what we've done at First Street is we've taken a risk-based approach that should be somewhat similar to what FEMA would do. Again, this is just a general approach. And we've assessed the risk for every single property the United States.

And what we've found is that those properties that are at high risk areas and are going to likely see a lot of damage from severe flood, these properties will incur a lot of damages, and then they probably-- I do say probably-- incur a higher risk or a higher rate because we don't know exactly what those rates are going to be yet. But the way that is done right now is, as you mentioned, with a very broad map-based approach instead of a very specific property-based approach.

That kind of risk gets spread along a much more greater number of properties, a greater number of insurance policyholders. And so we're all waiting to see what kind of reform FEMA will bring. And we're very supportive of that reform because, as we know, the NFIP for many years has been running in the red, and we do need to get this back on the rails.

- Now I know a lot of climate activists actually cheered this move because, again, it would discourage development in a lot of these very vulnerable areas. But what about communities that already live in some of these areas? And I'm thinking disadvantaged, low income, minority communities that live in some of these areas. Louisiana comes to mind. And these are folks that were pushed there, historically. What can be done to ensure some of those folks, some of those households, some of those communities without making them face these over-economic burdens?

ED KEARNS: Yeah. This is a tremendous policy question. And there are many possible answers. So at First Street, what we're trying to do is we're putting this information out in the public eye. We're democratizing this information so that everybody, all those communities, everybody in Washington, everybody that's interested in this topic has access to the same information. And we believe this is the first step towards coming up with those really hard policy answers that can be equitable across the population.

- I'm wondering if, as you look out ahead at some of these climate events-- flooding being one, but I think of the storms in Texas just recently also comes to mind-- does more comprehensive insurance need to be thought of, especially as some of these climate events are going to be more prevalent, especially things like freezing temperatures in a place like Texas is going to be a little bit more likely to occur going forward?

ED KEARNS: Yes. These extremes are predicted with science. Leaning on the science that we have today to help guide our policy action going into the future is really important, and that goes to insurance rates, goes to all the different decisions we have to make as a society. Leaning on that science that is very dependable, very predictable. If we don't use this information to adequately prepare, it's sort of shame on us. But the scientific community has been working on these issues for quite some time. The information is good, and this is the kind of data that we should be basing these really tough policy choices on.

- I have just about 45 seconds left with you here, Ed. I do want to ask you about insurance companies going forward, what the cost to them is going to be. Of course, there's an increased desire for some of their products but it also seems as if they're going to be paying out quite hefty sums going forward, especially as these climate events are more and more frequent.

ED KEARNS: Yes. The insurance and reinsurance industries are well aware of this. There's a big scramble right now to get the best information possible, not using just one future model but multiple future models for future conditions, for future climate conditions. I think the insurance industry is stepping up now and using the science to help guide their decisions too. So this is a very good sign. I think we're on the right track, but there's a lot of information that we need to bring to bear to help answer these questions.

- All right. Ed Kearns, First Street Foundation chief data officer. Thanks so much for joining us.