FEMA Flood Map Changes to Raise Insurance Costs

FEMA Flood Map Changes to Raise Insurance Costs
June 21, 2010

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

Recent changes in flood risk maps have caused thousands of Americans to rush to find additional flood insurance for their homes and businesses.

Flood insurance maps inform owners of property on U.S. coastlines and riverbanks of flood damage risks their properties might face. The Federal Emergency Management Agency (FEMA) is primarily responsible for drafting these maps, which must be updated periodically to ensure they accurately depict true flood risks.

Changes in the courses of rivers and the physical condition of levees and dams are among the factors that need to be considered. Most of these factors change over time, and the maps must be changed accordingly.

Downgrading Can Be Costly
Downgrading an area to a high-risk flood zone has a big effect on the homeowners living there, however. Homeowners with federally backed mortgages will be required to purchase flood insurance after a downgrade, even if the area has no previous history of flood damage. The federal government provides flood insurance, not private insurers.

In Arkansas—where at least 20 people died June 11 in a flash flood in the federal Albert Pike Recreation Area—the Arkansas Democrat-Gazette reported, “A property owner faces an annual flood insurance premium of $700 for a house valued at $50,000 and up to $2,500 for a $250,000 house.”

Break on Premiums
To alleviate the costs of transitioning to the new flood maps, FEMA has decided to offer property owners up to two years of eligibility in the National Flood Insurance Program’s lowest-cost option, the Preferred Risk Policy. The new insurance rates will be available to these homeowners after the new maps take effect—by the fall of 2010 or winter of 2011, depending on their location.

FEMA’s efforts brought both praise and criticism from lawmakers and insurance industry representatives.

Sen. Dick Durbin (D-IL) praised FEMA’s efforts.

‘Only Temporary Solution’
“FEMA made the right decision in extending deeply discounted rates to homeowners and businesses once the new maps take effect. But this is only a temporary solution,” said Durbin in a press statement. “The long-term solution is to bring the levees into a good state of repair so that the region is adequately protected. Today, FEMA is ensuring that residents will at least be financially protected—at an affordable price—in the event of a flood.”

However, representatives from the insurance industry argue the program might not be financially strong enough to withstand an influx of new policies.

Matthew Glans (mglans@heartland.org) is a legislative specialist in finance and insurance at The Heartland Institute.

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)