The taxpayer-subsidized National Flood Insurance Program (NFIP) is in peril of going bankrupt and will need to dramatically raise its rates in order to cover the risk of rising seas and major storms to coastal properties, according to the Union of Concerned Scientists (UCS), a think tank that works to solve our planet's most pressing problems.
In a recent report, the UCS finds that the ‘NFIP's subsidized insurance rates do not reflect the true risk of coastal flooding events and are too low to cover the program's cost, especially during years with exceptionally high damages.’
The NFIP was more than $20 billion in debt as of November 2012, and once all Hurricane Sandy claims are settled, that number will rise to nearly $30 billion, according to the report titled ‘Overwhelming Risk: Rethinking Flood Insurance in a World of Rising Seas.’
The problem is that the NFIPs ‘artificially low insurance rates’ are leaving U.S. taxpayers liable for billions of dollars in insurance claims and disaster relief when major storms strike coastal areas.
While some increases in NFIP's insurance rates are already set to take place, the group is recommending additional increases be implemented to cover the increased risk. It suggests that vouchers or rebates be made available to low-income property owners to help them maintain adequate insurance coverage.
The report finds that rising sea levels are increasing the risk of destructive flooding events during powerful coastal storms. ‘At the same time, increasing coastal development and a growing population are putting more people and more property in harm's way,’ it states, adding that the current flood insurance system is encouraging development that increases these risks.
‘We urgently need to reform our insurance system to more effectively manage and reduce these coastal risks – risks that are projected only to grow in a warming world,’ the report states. ‘Rising sea levels represent a significant risk. Nearly three million people live less than three feet above today's average high tide.’
The report cites research forecasting that the global average sea level is likely to increase six to 16 inches by 2050 and by up to 6.6 feet by 2100 as a result of global warming. These rising sea levels are putting approximately $10.6 trillion-worth of property along the U.S. coastline at higher risk.
As the report points out, many private insurers have left the coastal insurance market in the face of these increased risks. As a result, the NFIP is now essentially the only provider of flood insurance for homeowners and small businesses.
Administered by the Federal Emergency Management Agency (FEMA), the NFIP carried more 5.6 million insurance policies, with approximately $1.25 trillion in insured assets, in 2012.
In addition to calling for higher NFIP insurance rates, the UCS is also recommending that FEMA discourage continued building and rebuilding in high-risk areas by reducing payouts for repetitive losses and increasing rates in the event of repeated losses. What's more, the group wants FEMA to update its flood maps (which it has already been doing) to reflect the true risk of storms and flooding on coastal properties.
‘The flood-risk maps created by FEMA to help determine insurance rates fail to account for future sea level rise and long-term erosion, which will create increased risks to many coastal properties,’ the UCS states in its report.
The group points out that about a quarter of all NFIP payments for flood damage since 1978 were repeated payouts to the same high-risk properties. It also notes that the NFIP has historically offered exemptions for certain high-risk properties, thus allowing those property owners to side-step compliance requirements, including protective measures to reduce damage. This ‘allows them to avoid paying higher insurance rates even if the location is rezoned with a higher flood risk.’ The group calls for the elimination of these ‘grandfathering’ provisions, which ‘unfairly subsidize some property owners at the expense of others and perpetuate risky development in coastal floodplains.’
The UCS also recommends that all properties in high-risk areas be mandated to carry flood insurance. In addition, the federal government should create new incentives to encourage property owners to make upgrades that help reduce the risk of coastal flooding damage.
‘The Biggert-Waters Flood Insurance Reform Act of 2012 is taking some important first steps to remedy some of these shortcomings in the National Flood Insurance Program,’ the report states. ‘It should be implemented as scheduled, though the additional steps outlined above should be taken to further minimize our coastal risks in a world of rising seas.’
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