Mayor Bloomberg, Deputy Mayor for Operations Cas Holloway and the RAND Corporation today released a study finding numerous gaps in the National Flood Insurance Program that will significantly increase flood insurance costs for New York City residents. The independent study was commissioned by the City of New York to help evaluate current flood insurance coverage and premiums and prepare for expected rate increases due to major reforms of the flood insurance program and updates to the Federal Emergency Management Agency’s flood maps.
The study found that 35 percent of property owners in the floodplain who are required to carry flood insurance today do not have it. Under new FEMA flood maps that will be adopted shortly, thousands of new properties will now be considered in the floodplain, increasing owner’s insurance premiums from an average of $430 to $5,000 to $10,000 per year. RAND worked with the City to identify steps that could be taken to provide some relief from these insurance premium increases including flood mitigation measures, high-deductible policies and other measures. The City will press Congress and FEMA to take steps to protect homeowners, including delaying or modifying the implementation of some provisions of the new National Flood Insurance Program until measures to ensure that flood insurance stays affordable for low and middle income families are in place.
“For thousands of New Yorkers, the difference in the cost of insurance as a result of Federal policy changes is the difference between being able to stay in their neighborhoods and having to move,” said Mayor Bloomberg. “We will continue to lobby the Federal government to implement solutions to help New York City residents mitigate the significant rise in their flood insurance costs and help New Yorkers damaged by Hurricane Sandy to recover and rebuild.”
“Adopting a risk-based premium structure for the National Flood Insurance Program is the right approach,” said Deputy Mayor Holloway. “But it has to be done in a way that is affordable and encourages homeowners to take common-sense measures to protect against flooding and other climate impacts. Congress required that affordability be addressed before the new flood-insurance rules took effect and that has not happened. Doing so now must be a national priority.”
“Hurricane Sandy exposed serious gaps in the public and private flood insurance markets in New York City,” said Lloyd Dixon, lead author of the report and director of the RAND Center for Catastrophic Risk Management and Compensation. “Residents and businesses will be facing higher premiums as the impacts of new, more accurate flood maps and reforms to the National Flood Insurance Program begin to take hold.”
There are two changes that coincided with Hurricane Sandy which are further compounding the impacts of the physical damage: the overdue update of FEMA’s Flood Insurance Rate Maps and Congressionally-mandated reforms to the National Flood Insurance Program (NFIP) embodied in the Biggert-Waters Flood Insurance Reform Act of 2012. The Biggert-Waters reforms are designed to phase-out subsidies and grandfathering which allowed homeowners to insure their homes at rates corresponding to previous flood maps. The study released today estimates that although primary homes that were insured as of July, 2012 may see little to no increase, others may see potential increases range from $5,000 to $10,000 a year or more for the same amount of coverage.
New York City is requesting a delay of Biggert-Waters until FEMA’s affordability study is complete. FEMA, as part of the Biggert-Waters legislation had been required to complete its own affordability study by April 2013 and that study has been delayed. The implementation of Biggert-Waters will significantly impact low and middle income populations and have impacts on home ownership affordability and neighborhood stability. Until FEMA completes its study to better understand the impacts of this legislation and designs solutions to address them it is best if the legislation does not get implemented.
Before Hurricane Sandy, the NFIP was in the process of redrawing outdated flood maps that define high-risk areas and increasing its premiums, in order to reflect the full risk of flood damage to structures within the floodplain. The new maps, released in June 2013, reveal an expanded floodplain in New York City that includes twice as many structures in the high-risk zones; there are now about 68,000 structures in the floodplain, with 32,000 buildings added under the new maps. When these maps are adopted, nearly double the number of properties will be required to purchase flood insurance. The new flood maps also increases the height flood waters will likely reach in the 100-year flood (a flood with 1-percent chance of occurring in any year) by an average of 2 feet, with increases of 4 feet and more in some areas. Additional reforms will phase-out rates that have been subsidized since Congress established the federal program in 1968.
As a result, many coastal residents may be unable to afford the sharp increases in premiums that will be phased in over the next few years. The National Flood Insurance Program is the primary source of flood insurance for homeowners and smaller residential properties and businesses; larger businesses typically buy flood insurance in the private market, although they may also buy a National Flood Insurance policy to cover the first layer of loss.
Due to City advocacy FEMA has already agreed to offer premium reductions for homeowners that elevate their boilers and other mechanical systems in their home. New York City will continue to advocate for a variety of other mitigation measures identified in the study released today and detailed in “A Stronger, More Resilient New York.” These measures include:
- Mitigation financing that provide resources for homeowners to reduce risks and premiums
- Low-cost, high-deductible policies for lower-income homeowners not subject to mandatory purchase requirement
- Premium reductions for homeowners that invest in resiliency measures other than elevating their entire house such as structural reinforcement.
The study’s initial results provided background data on flood insurance for the City’s recent report, “A Stronger, More Resilient New York,” which was released in June 2013. The research was conducted within the RAND Center for Catastrophic Risk Management and Compensation, part of the RAND Justice, Infrastructure, and Environment research division of the RAND Corporation.