Hurricane Helene Exposes Gaps in Flood Insurance
October 8, 2024
The devastation wrought by Hurricane Helene, particularly in western North Carolina, exposed the stark need for far more robust flood insurance as climate events increase in frequency and severity.
To obtain Federally-backed loans, property owners in Federal Emergency Management Agency (FEMA)-designated flood zones must purchase flood insurance.
- Private insurers do not typically offer flood coverage.
- Instead, FEMA’s National Flood Insurance Program (NFIP) insures ~4.6 million properties across the U.S.
However, FEMA does not consider rain-induced (pluvial) flooding when developing flood maps; instead, it focuses largely on coastal and riverine flooding.
- FEMA flood maps are often characterized as “outdated and inaccurate, failing to depict current flood risk.”
- According to Reuters, FEMA said that approach is set by law and its maps should not be viewed as a prediction of where flooding will occur. "Where it can rain it can flood," FEMA press secretary Daniel Llargues said.
- Reuters further notes that in the region impacted in western North Carolina, “roughly 1 in 200 single-family homes is covered by the NFIP… a far lower level of coverage than can be found in the coastal and riverside neighborhoods the program was designed to serve.”
Why it matters: Insufficient flood insurance coverage will likely result in a hit to property values, significant costs from business interruption, lost rental income, and greater income inequality.
- According to experts interviewed by Politico, “struggles will be most severe in low-income communities where people have little savings and often cannot qualify for credit from banks or low-interest disaster loans from the Small Business Administration.”
- “It’s going to be a mess,” said Donald Hornstein, director of the Center on Climate, Energy, Environment and Economics at the University of North Carolina at Chapel Hill.
What they’re saying: In a Liberty Street Economics blog post, published just two days before Helene hit North Carolina, researchers at the Federal Reserve Bank of New York found that in 2021, over $600 billion in mortgages were originated in areas with high flood risk but no flood map.
- According to Moody’s Analytics, Helene probably caused $15 billion to $26 billion in property damage, and an additional $5 billion to $8 billion in lost economic output.
- Further, Trepp compiled a CMBS loan exposure list for properties within a 50-mile radius of the main metros impacted by Helene, finding that 550 CMBS loans, with a current balance of almost $60 billion, fall within this range.
As noted in CREFC’s Policy and Capital Markets Briefing last week, the House and Senate passed a continuing resolution (CR) on Sept. 25 to keep the government funded through Dec. 20, including a temporary extension for the NFIP.
However, the need for insurance reform remains acute, as evidenced by the impact of increasingly frequent, severe climate events.
- CREFC continues to work with policy makers and other trade groups to identify and advance possible solutions.
- We have also held a number of webinars and panels on the topic of insurance. Please see CREFC Sustainability Presentations for recorded sessions.
Please contact Sairah Burki (sburki@crefc.org) with questions.
Contact
Sairah Burki
Managing Director, Head of Regulatory
Affairs & Sustainability
703.201.4294
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