Fewer expected to buy flood policies

In FEMA forecast, price rise to reduce rolls by 1 million

ST. LOUIS — When questioned by members of Congress, the Federal Emergency Management Agency said its new update to the nation’s flood insurance program will prompt more people to sign up for coverage, even though many will pay more for it.

But in a FEMA report obtained by The Associated Press under the Freedom of Information Act, the agency estimates 1 million fewer Americans will buy flood insurance by the end of the decade — a sizable number of people at risk of catastrophic financial loss.

As climate change drives increased flood risk in many parts of the country, FEMA has updated its flood insurance program to more accurately reflect risk, but also make the program more solvent. It’s a response in part to criticism that taxpayers were funding big payouts when coastal mansions in risky locations flooded.

But nine senators from both parties expressed “serious concerns” about the new pricing system in a letter last September, after hearing that the agency’s internal numbers predicted policies would drop off by 20%.

At the end of the year, the agency sent a report to the treasury secretary and a handful of congressional leaders saying higher prices would drive a fall off of 1 million policies compared with the beginning of the decade.

The federal flood insurance program was started when many private insurers stopped offering policies in high-risk areas.

By more accurately setting rates, the update, officially referred to as Risk Rating 2.0, makes it more expensive to develop in flood-prone regions, shifting the risks of disaster towards those homeowners.

Risk Rating 2.0 will factor in a property’s unique flood risks — such as its distance to water and cost to rebuild.

Most policy holders will see their rates go up. But for the first time, nearly a quarter of policyholders will see rates go down. Buyers of new policies began seeing the new prices in October.

FEMA downplayed the report obtained by the AP as a pessimistic projection, aimed at forecasting finances, not insurance participation. The agency said it has not directly studied how many people will buy flood insurance.

“There’s numerous reasons that growth could occur as time goes on,” said David Maurstad, a senior executive of the National Flood Insurance Program, adding that an enrollment analysis should consider the agency’s marketing efforts, the program’s clear messaging of flood risk, price decreases and other factors.

But critics like Sen. Bob Menendez, D-N.J., said affordability is a problem and FEMA didn’t disclose the impact of those higher costs.

“This report makes it crystal clear that FEMA failed to be transparent with … the American public,” Menendez said in a statement.

Jim Rollo, a New Yorkbased insurance agent, said he’s seeing a change in some buyer attitudes. Some “roll the dice” and forgo costly insurance if it’s not required.

But Maurstad said FEMA’s mission is different from the private sector. FEMA must help people “before, during and after” disasters as well as charge premiums that are risk-based and financially sound, he said.