The Advocate. February 13, 2022.
Editorial: Louisiana needs flood insurance, but can we afford it?
Nobody wants to see taxpayers’ money wasted but we’d like to see a similar level of commitment to the preservation of Louisiana’s coastal communities, and those beside the Bayou State’s lakes and streams.
If in the name of equity sweeping changes to federal flood insurance make policies unaffordable to Louisiana’s property owners, there’s more threatening our communities than the ordinary hurricane. Owning a home, much less building a new one, would become a financial impossibility.
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Try obtaining a home mortgage if flood insurance is not available at a reasonable rate. Our real estate markets are at serious risk, and we question whether the game will be worth the candle for the federal government: Is economic vitality of vast coastal regions of the United States to be endangered by National Flood Insurance Program premiums?
This newspaper’s analysis of data from the NFIP’s bureaucratic home, the Federal Emergency Management Agency, showed crippling potential premiums under a new system, dubbed Risk Rating 2.0.
The rate increases would be phased in slowly over multiple years because program rules limit price hikes to 18% annually. The good news is that around a fifth of Louisiana policyholders deemed to have been paying too much are expected to see one-time decreases averaging about $960.
But for most, it’s a different story.
Louisianans have by far the highest participation rate in the program of any state’s residents. The state also accounts for a disproportionate share of claims, as it has since hurricanes Katrina and Rita in 2005.
Flood insurance is vital in a low-lying state, of course. At earlier rates, officials like Insurance Commissioner Jim Donelon campaigned for people to sign up, so that their homes are protected.
But after Risk Rating 2.0, many Louisiana families paying into NFIP may now find it unaffordable.
Premiums have been rising steadily, as FEMA notes, but our reporters’ interviews across the Louisiana coast find some staggering bills on the horizon.
FEMA has provided figures on premium increases for the first year only, which masks the overall impact. This is especially true in Louisiana because the state’s residents currently pay among the lowest premiums in the country.
Many Louisiana families will see 18% hikes compound at that rate for multiple years. According to FEMA’s estimates, even after five straight years of compounding 18% increases, roughly half of policyholders will not have reached their target rate yet.
The Louisiana delegation in Congress has been deeply involved in these issues, and the impact of bigger and more powerful storms — Hurricane Ida caused serious flooding and tragic loss of life up East — makes it easier to argue for a more reasoned national approach to NFIP’s problems.
There are community ratings, for example, in which flood protection programs — levees and other public works among them — might mitigate rate increases. But we wonder if those will be adequately priced in to premium rates.
Louisiana’s homes, by and large, are middle-class housing, not seaside mansions. Are we to be judged by a Miami Beach standard of flood risk?
Maybe it’s apocryphal, but Albert Einstein was reported to have said that the most powerful force in the universe is compound interest. Compound premium increases could have Category 5 impacts on housing markets.
Louisiana must watch this issue very closely.
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