Climate Threat can bring big jump in insurance cost this year

    WASHINGTON – The cost of federal flood insurance will need to increase substantially to meet the increasing risks of climate change, new data suggests, creating a political headache for the Biden administration.

    According to data released Monday by the First Street Foundation, the National Flood Insurance Program, which provides the majority of United States flood insurance policies, will have to quadruple the premiums in high-risk homes within floodplains that have already suffered Reflects the risks incurred. A group of academics and experts who explain the risks of flooding.

    By 2050, First Street estimated, climate change-related flooding would require a seven-fold increase.

    The new data may point to higher flood insurance costs this year for at-risk homes. On April 1, the Federal Emergency Management Agency, which runs the flood program, is set to announce new premiums using modern premium modeling techniques that more closely reflect the actual risks facing individual assets – the same The approach that Street previously stated. In calculating this.

    “If they take a purely risk-based approach, it would look like our numbers,” said Jeremy Porter, head of research and development at First Street and director of quantitative methods at New York University’s social science program. Several US agencies, including the Federal Housing Finance Agency and the Federal Reserve Bank of Atlanta, use First Street’s data.

    FEMA issued a statement warning people not to assume that its new system for setting premiums, which it calls Risk Rating 2.0, will increase the rate that matches the model made by First Street .

    David I., who runs the flood insurance program for FEMA. “Any institution claiming that they can provide information or comparison to the Risk Rating 2.0 initiative, including premium amounts, is misinformation and setting public expectations,” said Morstad. .

    Nevertheless, most experts agree that a closer analysis of flood risks will lead to costly insurance for owners of high-risk homes that they already pay. This presents a challenge for President Biden, who has promised to pursue a climate agenda guided by science and data, but has also said that he is focused on addressing the economic concerns of middle-class families.

    Climate and disaster experts argue that the cost of flood insurance reflects the absolute risk of living in flood-prone areas, a warning to prospective buyers and a signal for local authorities to limit development in those locations. Because the federal government has no control over land-use planning or building codes that are set by state and local governments, one of the most powerful tools of how and where flood insurance programs affect Americans’ homes is is.

    But a big jump in rates could put more pressure on the household budget of those who already live in vulnerable areas, and cause home values ​​to fall as well.

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    Credit …Hillary Swift for The New York Times

    “FEMA recognizes and shares concerns about flood insurance affordability,” said Mr. Morstad, with rates falling under the new system for some and the same for others. “Policies that will see large annual growth are the minority of all policyholders.”

    Any cost to existing customers will be spread over years or decades, as Congress prohibits FEMA from raising individual homeowners’ premiums by more than 18 percent annually. So, even though FEMA’s new system meant that the final rates on paper doubled for some people who already had coverage, they would be spared paying the full increase at once.

    But when a house that is covered by flood insurance changes owners, the new buyer must pay the full rate immediately. Such a large increase in flood insurance rates can make it harder for buyers to scare off flood-prone homes, reduce their value, or even sell them.

    “We want people to know the risks they face,” said Rebecca Elliott, an assistant professor at the London School of Economics and Political Science and author of a book about flood insurance and climate change. At the same time, she said, many people rely on stable or rising home values ​​as the foundation of their financial health.

    Previous efforts to raise flood insurance rates have been delayed or brought back due to public pressure. In 2012, Congress passed a law that brought in rates to suit people at risk throughout; Two years later, MPs backed down, replacing those changes with more modest increases.

    FEMA’s new flood insurance system has prompted similar concerns. The new rates were initially scheduled to come into effect last October, but members of Congress warned FEMA about the effect that the increase would have on their constituents. According to a person familiar with the discussions, the Trump administration delayed the new rates until this year, in part worried that increasing premiums shortly before the election would hurt President Trump politically.

    According to Roy Theoretically, who was running the insurance program until 2018, the agency could theoretically find ways to increase those rates further. For example, FEMA may decide that insurance premiums be linked to a structure rather than a homeowner, so prices will continue to increase even if the homeowners change the annual limits.

    And experience suggests that despite rising insurance costs, home values ​​continue to rise in the most desirable coastal areas, Mr. Wright said, because people’s desire to live near water often remains unaffected by whether it makes sense financially Comes.

    “Does this suppress property values?” Said Mr. Wright, who now heads the Insurance Institute for Business and Home Safety, a research group. “In lucrative real estate markets, we have not seen this happen.”

    Eli Lehrer, president of R The Street Institute, a Washington-based research institute that advocates for market-based policies, said the government could not ignore the financial burden on those who already live in flood-affected homes.

    But instead of saving those by keeping insurance rates low, Mr. Lehr argued that Congress should offer direct subsidies, and only to those on modest incomes who would otherwise struggle to live in their homes. All else said, they should face their risk in full.

    “We are subsidizing people to live in areas that were dangerous when they moved there, and have become more dangerous,” Mr. Lehrer said.

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