The 2020 hurricane season was so bad, the National Hurricane Center ran out
of letters in the Alphabet.
Hurricane Delta. It's the first time we've ever gotten to the Greek
alphabet. This year, Twenty-nine named storms.
Hurricanes bring high winds and treacherous rainfall.
Two residents we speak to say it still looks like a bomb went off in their
town. But often the most damage is caused by flooding.
It is the largest natural catastrophe that we have.
It's happening all the time.
I could take you outside my house right now.
It's flooded, from the king tides.
We've had three major floods in the house.
Two of them have that major floods.
Even just a little bit of water can devastate a home.
FEMA estimates one inch of floodwater can cause up to twenty five thousand
dollars in damage.
It's mid intensity storms that park for long durations that are being the
facilitators of the most catastrophic losses.
With sea level on the rise and increased storm severity, all Americans are
at risk. If you live somewhere where it rains, you need flood insurance.
However, flood insurance is inherently complicated.
Arguably, if the insurance costs were higher, perhaps people wouldn't be
living in such risky areas.
Congress created the National Flood Insurance Program, or NFIP, in 1968 to
help Americans facing flooding.
At the time, there was no other insurance for flood that was available in
the United States. The application and underwriting process with the NFIP
is very tedious and often the claims paying process is slow.
The NFIP is over 20 billion dollars in debt to the U.S.
Treasury. This line on the map, the one percent annual chance lying on the
map is had unintended consequences.
Could the private sector provide a better model for flood insurance?
And did governmentally funded flood insurance encourage dangerous
practices? Fourteen point six million properties in the continental U.S.
are at a substantial risk of flooding in 2020.
In 2019 ninety three people died directly due to flooding in the U.S.
You can check out your risk at floodfactor.com, but experts say almost
every home is at risk.
We are seeing more severe floods, more severe hurricanes, more severe
wildfires. Why?
Most of the time, it's because more people are living in harm's way.
Folks think that they're not at risk and they know that they don't need a
flood insurance coverage when clearly 30 percent of our losses in any
particular year happen in the low to moderate risk area.
Take, for example, Florida, the nation's third most populous state and
fifth fastest growing state in the US with a growth percentage rate of one
point five percent.
Once the pandemic hit and remote work became the norm, even more people
started flocking to the Sunshine State.
My name is Curt Dyer and I live on Miami Beach, Florida.
I've lived here for 30 years.
I love Miami Beach. I instantly fell in love with it.
It's a beautiful town, friendly people, great food, beautiful beaches.
Florida is one of the top two states facing the biggest substantial flood
risk, and that risk will only continue to grow over time.
The first flood that we had in 2009, we literally had the little bedroom
and bath. I guess there were completely.
And we have four steps going up to the kitchen and the guest bedroom.
The water was up to the top steps.
Washer dryers, of course, were floated in the garage.
We lost our water heater.
We lost the central AC that we just put in.
We lost I had fish floating in the pool from the bay.
We had a partial we had two parts of a boat dock washed up onto our front
yard. There was it was quite dramatic.
I was devastated, absolutely devastated.
It was just a shock. But when you see water in your house, it's just it's
devastating. You know, it's a miserable feeling.
You know, you get a check. Luckily, I'm fortunate enough to have insurance
and I couldn't afford to pay for it.
Most a lot of people don't.
But I would have considered buying or I mean, I love Miami Beach.
I wanted a house. We've seen a lot more of not just storm flooding, but a
random rainy day flooding too.
Part of it is due to building.
You know, the more we build, the less ground there is to soak up the
rainwater. Unfortunately, most people don't think about risks when they're
purchasing property. They just look at a beautiful barrier island or a
beautiful forest in California and the risk doesn't come into play for
them. I had no clue this house flooded and the seller nor the realtor
disclosed it. But I have no regrets.
You know, I just need to take care of the situation, that's all.
Cities like Miami and New Orleans will likely experience the most sea level
rise flooding, which may in turn cause mass migration away from there.
If the residents are concerned about the flooding, however, that is not
always top of mind.
Most of the time, people don't think they need it.
Sometimes even people think they already have it.
That's a big misinformation in terms of flood insurance because most
people think it's part of their homeowner's policy when it's not.
In 2018, only 15 percent of American homeowners had flood insurance.
60 percent of Floridian homeowners did not have flood insurance when
Hurricane Irma hit.
Federal grants, loans and flood insurance payments to Florida following
the storm have totaled over five point eight billion dollars.
It's estimated that 80 percent of the damage to all impacted areas was not
covered by flood insurance.
Conversely, those who do purchase flood insurance may feel emboldened to
live in riskier locations.
A mortgage lender may require flood insurance, but since that can be
provided at a relatively low cost thanks to the NFIP, people don't assume
the full risk for living in a dangerous location.
We're causing a false incentive on people to live in riskier areas.
And really, the cost then spreads throughout the government and to all
Americans and taxpayers.
And prior to 2012, flood insurance premiums were kept artificially low
because people with homes built before the NFIP was established were not
required to purchase flood insurance.
It has affected mostly the Pre-FIRM homes.
They a lot of those homes have been receiving a subsidy.
Congress then created a group of people, about 20 percent of the policies
that are discounted.
So by law, they pay less than their full risk rate.
So a lot of people think, you know, I don't have flood insurance.
If I have a flood, it's OK.
Female just, you know, give me money that it's not how it works.
In order to be eligible for the FEMA grants and everything, you have to be
a part of the NFIP.
In 1968, the NFIP or a national flood insurance program was created.
It has the fundamental structure so that we, yes, make insurance available.
But we do a few other things with the National Flood Insurance Program.
In twenty two thousand four hundred communities, we have approximately five
million policyholders, right.
A trillion point three insurance coverage in those communities generate
roughly four point five billion dollars in revenue.
So it's a multi faceted government program that has a number of very
important objectives.
There's different branches of the NFIP.
There's the flood insurance branch, there's floodplain management, as well
as coming up with the flood insurance rate maps, which are used in
regulation and currently in rating of insurance.
NFIP insurance costs about seven hundred dollars per year or about two
dollars a day for residential properties.
It covers up to two hundred and fifty thousand dollars of damage to the
building and one hundred thousand for building contents.
It also requires a 30 day waiting period, so participants must sign up
ahead of a storm coming their way.
Some stakeholders see the NFIP insurance as flawed.
So if you live in a home that's four hundred thousand dollars and you only
bought a two hundred and fifty thousand dollar limit and the home was
flooded, it poses the question, what do you do?
The second responsibility of the NFIP is tracking flood risk.
Using the floodplain map.
They determine your price for your flood insurance by two main factors.
One, what flood zone you're in and then the height of your home.
When I say height, the elevation in comparison to what they determined to
be your 100 year flood event.
There's three different flood zones.
There's a flood zone X where you're not being forced to purchase flood
insurance through your mortgage company.
And then there's two other flood zones, flood zone A, which is a proximity
to water, and then flood zone V, which would be on the water where you
have the potential for storm surge.
The flood insurance rate maps were very good for the time, but currently
with a flood rate, maps all risks in the same zone, with the same
elevation in the same building type are rated the same.
The NFIP intends to release a new mapping plan called a Risk Rating 2.0.
We know more about flood risk now than we did when the current rating
methodology was put in place four decades ago or so.
And so now, because of technology, because we understand the risk better,
we can create a rating methodology that identifies what the risk is on a
property specific basis instead of a zone basis.
It's going to be a little bit of a switch up.
Some people will probably see increases as other people see decreases, but
it'll be more balanced overall.
Communities are the third dimension because they have to adopt land use
ordinances to manage their floodplain.
Communities need to fulfill the requirements and show that they've actually
adhered to and are making progress in terms of making themselves more
flood resilient. FEMA is very good with working with communities to help
them bring their codes and ordinances up to meet the NFIP standards.
Some examples of improvements could be.
Elevate your house if you're in a flood zone, don't put enclosures down
below and convert them into living space.
You know, allow for water to freely flow on that bottom level.
Our insurance, went down almost four thousand dollars a year just by
replacing the windows. As of 2020, the NFIP is over twenty billion dollars
in debt to the U.S.
Treasury. But it's debt that one government program owns to it another
government program.
And it is wholly attributable to the areas in the program that are not
actuarially sound.
The program was never designed to necessarily bring in all the money needed
to pay for all the programs, whether that's insurance claims, the grant
program, the mapping program or the floodplain management program.
And so the program is actually functioning and operating as it was
designed. It just the design needs to be updated.
In 2012, the Bigger Water Act changed the NFIP to create rates based on
more information than just the flood maps and attempted to overhaul the
NFIP to ask for higher premiums that better match the risk.
That law was amended to gradually increase the cost over time instead of
doing an adjustment in just one year.
This was a big deal. We were trying to make some progress, trying to to
write and rate and price the risk accordingly.
But politics set in and in this NFIP program is often one of the biggest
political footballs. We're I think definitely taking steps in the right
direction to get the program more fiscally sound, but it'll take a number
of years once the sound financial framework is put in place, a number of
years for us to get to a fully risk-based premium program.
Although it is starting to expand, private flood insurance has been around
for a while. In 1986, the NFIP started a partnership with private
insurance companies through the Write Your Own program.
As of September 20, 60 insurance companies participate in that program.
The NFIP and FEMA are the insurance company in that situation.
But it's not an insurance company from a traditional aspect.
It's really more in the case of it and the application of benefits.
The move toward a more laissez-faire marketplace has continued to evolve.
We've seen a significant increase in market activity in terms of number of
carriers offering.
So in twenty sixteen, at about sixteen flood insurance carriers, now
you've got about forty one.
The premiums have grown from one hundred and fifty million to over five
hundred million in just four years.
So a lot of activity.
Good. What I would call silver lining is that we are beginning to see
private industry enter into this market and hopefully we can neutralize
some of those political headwinds that come along with the National Flood
Insurance Program. TypTap is an example of that.
In Florida alone, there are over nine million housing units and only one
point seven million NFIP policies.
So there's lots of opportunity for private insurance to develop.
We were already in the homeowner's insurance business in Florida and we
received many calls from policyholders saying, can you help us?
Is there any way you can assist us?
Because we're in a situation where we're not able to afford this flood
insurance premium, we're ultimately going to have to move from our home.
And with the use of technology, we felt that there was a better, more
efficient, profitable way to write flood insurance.
Specifically in Florida.
A lot of private flood insurance underwriters don't rely so much on the
flood zone as they do the buildings specific characteristics.
With the application of that technology TypTap is hoping to attract some
homeowners away from the NFIP and turn a profit.
Through our technology, we're able to identify dislocations in the market
and a majority of the cases offer flood insurance at a more attractive
price. Even with the growth of private markets that I really do think
Florida is going to lead the way and I hope we see expand across the
country. We're still going to have a set of structures for which the risk
is high and the concentration of the number of those in a given area is so
high that the private marketplace just is not going to be interested in
that. We've got to understand that that we're way underinsured in the
number of properties that should should have it.
There is a huge market out there in the high risk area.
We estimate only a third of the properties have either an NFIP or private
sector flood coverage.
There's a market there. So we want to do what we can to encourage the
private sector to to also take part in managing the flood risk of the of
the nation's. Private insurance companies are also able to insure at a
higher rate than the NFIP.
That means more protection for homes worth over two hundred and fifty
thousand dollars. But that could mean more valuable homes built in riskier
areas. For example, the average value of a home in Miami is close to three
hundred and sixty six thousand dollars.
That's the same Miami that floods during high tide.
A report by Risky Business put 15 billion to twenty three billion dollars
worth of existing property in that area underwater by 2050.
I don't think Miami is going to be underwater in my lifetime.
That's not saying that we should address it now because it's not going to
get any better. You know that king tides are going to get worse.
If I can't get insurance and the quality of life goes down.
I'm not a fool. I'm not going to stay here.
But I hope it doesn't come to that.
Clearly, without the National Flood Insurance Program, there would have
been far more development in the high risk area and would have been far
greater losses without without the program.
Has the program stopped any unwise development?
Of course not. But our floodplain management regulations do save one
hundred million dollars in losses avoided.
The NFIB also encourages communities and individuals who have experienced
multiple flooding events to work on resiliency and aids them if they are
considering a buyout provided by FEMA.
It's also has to be determined what is what is still do from from a
mortgage standpoint and that that home, if not fixed, would have a lower
probability of of being sold.
You can't convince me that property values have gone down and you can't
convince people that people don't want to buy homes and live here because
they're buying like crazy. There's no incentivization to move if you're
paying rates that aren't actually based on risk, they're based on
political judgment.
Investing in the resiliency required by the insurers can save lots of money
and heartache. You can get into these communities, you can educate them,
you can inform them and help them understand what better building can do.
That's really one of the keys.
For every dollar spent on being resilient, you save seven dollars and
recovery. Closing the insurance gap will certainly help protect property
owners living in harm's way.
But that could just be a Band-Aid for the much larger issue.
Both the East and West coasts will be directly impacted by flooding from
sea level rise.
The second piece in this is something that no private marketplace would
ever do is to put in place a grant program that requires at risk
structures, particularly those that have had repetitive losses and says
we're going to pay not just the value of the structure, but buy out the
entire piece of real estate and dedicate it as open space in perpetuity.
This is predicted to spark a mass migration inland.
The question remains if these indirectly impacted communities will be
ready to support the new influx of residents or climate migrants.