Third Way: The Unaffordability Of Flood Insurance Versus Floods
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On Tuesday, July 20, 2021, a flash flood warning was issued for the area of Poudre Canyon in Larimer County, Colorado. The flood left three people confirmed dead, one still missing, and five homes destroyed. While Clyde Romero Jr., one of the owners of the five houses, was thankfully not home during the flash flood when his house was washed away by the flood and a resulting mudslide. Unfortunately, while he had home insurance, he did not have flood insurance and he will now have to spend about $400,000 out of his own pocket in order to rebuild his house and his life. Ironically, although he lives along the Poudre River – which has flooded before – when Romero first purchased home insurance his insurance company told him that it wasn’t “affordable to have flood insurance.” Arguably, it’s much less affordable to be $400,000 in the hole while he rebuilds his house.
Home Insurance Policies
Romero’s story is hardly a new one. Standard home insurance policies cover damages that are supposedly more expected, such as fires or break-ins. Yet in some places, floods are just as likely – or even more likely to happen – and are still not covered. However, many people mistakenly believe that their home insurance policy does cover floods, including many who live in flood zones. For those who know it’s not covered, many of them will choose not to purchase it. In fact, an American Housing Survey done in 2017 found that only about 1 in 10 homeowners have flood insurance in the US, even though four-and-a-half million homes are at severe risk for flooding, and ninety eight percent of US counties have had a flood at some point in the past.
There are several reasons why American homeowners choose not to purchase flood insurance. One is simply that many people do not believe their home is at-risk for flooding. Unfortunately, with the climate crisis worsening, more and more people are at risk without realizing it. However, this first reason gets more complex with further investigation. Even for those who are in a high-risk area, such as Miami, only 1 in 3 homeowners have flood insurance. Why would more than half of the homeowners who live in places that frequently flood – and have possibly seen their homes been damaged by previous floods – not purchase flood insurance? For some, it is because they believe that the federal government and FEMA will bail them out. However, after Hurricane Harvey, homeowners with no flood insurance received only $6,000 from FEMA compared to the $114,000 that those with insurance received. However, the main reason that homeowners do not have flood insurance is not due to mistaken beliefs, but rather because they simply cannot afford it.
The Uneven Distribution of Flood Insurance and Damages
Flood insurance premiums can cost up to $2,000 a year, especially for people who live in higher-risk flood areas such as the Gulf Coast. Some people are unable to afford these high premiums, especially as it is seen as purchasing “extra” insurance to their home insurance. The unaffordable high premiums disproportionately affect lower-income and minority households. Unfortunately, these are the communities that are most likely to need it in the first place. Low-income neighborhoods and affordable housing units often have substandard infrastructure in comparison to those in higher-income areas. Lower-income communities are also more likely to live in areas of counties and states with greater flood risk as wealthier people can afford to live in safer places.
Combined, this perpetuates a vicious cycle of poverty and economic hardship. For those that don’t have flood insurance, the mere $6,000 on average that they would receive from FEMA would hardly make a dent in the money that they would need to rebuild their homes and lives after a damaging flood. Paradoxically, many of these homeowners belong to the group that could not even afford the flood insurance premiums. They couldn’t afford $2,000 a year and so instead they are forced to spend hundreds of thousands more dollars that they don’t have. This extra spending follows them into the future for years to come. A Brookings Institute study found that, a full ten years after Hurricane Katrina, which infamously affected Black and low-income people the most, “residents whose homes flooded during the storm had lower credit scores and rates of home ownership than their neighbors who were spared the worst.”
The Contribution of the Climate Crisis
Climate change is causing an increase in precipitation, water levels, and flooding throughout the United States. A study by Stanford University showed that climate change – and the excess precipitation that it causes – contributed to $75 billion worth of additional flood damages from 1988 to 2017. As climate change is only continuing to worsen, the videos of cars being swept away down the streets of neighborhoods that the residents were not expecting to flood are going to become more and more frequent.
Yet governments all over the world, including American state and federal governments, are not legislating or enforcing action to try and combat this climate change. Under Trump’s presidency, the US even withdrew from the Paris Agreement, an international treaty signed by countries all over the world to lower their carbon emissions. Although Biden rejoined almost directly after he took the presidency, there are still obstacles that we have to overcome in order to reduce our impact on the environment and try to prevent climate change from worsening even further.
Going Forward
This summer has shown a frightening and deadly number of floods coursing through streets and cities globally. In addition to the lack of environmental policy, it is clear that the flood insurance program is strongly lacking in clear areas – such as in affordability, racial and class discrimination, and widespread knowledge. The percentage of American homeowners with flood insurance needs to increase but, in order to do so, the flood insurance program needs a serious reform in order to be accessible by everyone.
