Insurance reform worsens affordability in flood-prone Louisiana

Yahoo

27-01-2025

The Plaquemines Parish community of Ironton, along the west bank of the Mississippi River south of New Orleans, flooded heavily during Hurricane Ida in 2021. (Halle Parker/WWNO)
Flood insurance is a tenet of life in water-burdened Louisiana. The low-lying portions of the state face rising water from the disappearing coast and more frequent heavy rainfall from hurricanes and seasonal storms that outpace the ability of local drainage systems to clear flooding.
But skyrocketing costs of National Flood Insurance Program (NFIP) coverage are spurring significant departure from the program, with about 70,000 policies dropped in Louisiana from 2022 to 2024. When paired with the ongoing home insurance crisis in Louisiana, this raises premium costs even more. Many are dropping insurance, contributing to an endless cycle of higher payments for those who need to maintain flood insurance or want to mitigate the risk of facing rising floodwaters.
Theryn Henkel, a former resident of the Gentilly neighborhood in New Orleans, knows the risks of flooding better than most. She lived in Louisiana for 18 years and worked as a scientist with the Coastal Protection and Restoration Authority.
Henkel bought a new café-au-lait-colored shotgun-style house and painted the door bright green. The house is elevated, the base raised about 3 feet off the ground with red brick to account for frequent flooding. Henkel purchased flood insurance just to be safe.
'I'm very into the coastal restoration realm and know the risks,' she said, 'so it was almost immoral for me to not have flood insurance, you know … I think it was very important to have it.'
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Her house wasn't technically in a high-risk area, and flood insurance was affordable – at about $400 a year.
'That was a cost that I was really willing to eat,' she said, even with regular home insurance in the state rising to $700 more than the national average.
By 2022, her premium had crept up to $650. By 2023, Henkel left Louisiana, saying spiking insurance costs contributed to her decision to leave for a new job in Olympia, Washington. She said she would have dropped her flood coverage had she decided to stay.
Created by Congress in 1968 in the aftermath of Hurricane Betsy, which devastated New Orleans, the NFIP acts as a last-resort for insurance coverage in areas deemed too risky by the private insurance market, pooling flood risk across a larger population to make prices more affordable.
The equation was simple; the more flood-prone a property, the higher the premium, based on flood maps and how high up a structure was relative to base elevation.
But the NFIP has been in debt for nearly two decades, even after Congress forgave $16 billion worth in 2017. Lawmakers lobbied for reform, and first instituted Risk Rating 2.0 in late 2021 and throughout 2022.
The new rate-calculation system aims to make the program more financially solvent and more accurate, with premiums reflecting actual risk: A property's proximity to flood threats and a home's construction style are factored in when pricing premiums.
'A lot of areas that are underwritten by the National Flood Insurance Program, that are in flood prone areas, and that are repetitive loss, are losing money and draining a lot of the resources,' said Jeff Schlegelmilch, Columbia University associate professor and director of the National Center for Disaster Preparedness at the Columbia Climate School.
He said that while Risk Rating 2.0 better addresses risk than previous FEMA tools, in an attempt to make the program more equitable, it's made coastal communities less affordable.
'Raising rates to reflect actual risk puts you in a situation where you're pricing people out of their homes, which has very devastating consequences for individuals and communities,' said Schlegelmilch.
Rising premiums have forced some to abandon flood insurance entirely, increasing risks and pushing costs higher for those who remain in the program.
Marguerite Oestreicher, director of Habitat for Humanity in New Orleans, describes the struggle for homeowners already struggling financially.
'It's not that people want to be uninsured. It's just, you know, the math just doesn't work, and you don't have enough cash to cover basic needs,' Oestreicher said. 'It's groceries, it's health care, power bills … we are seeing people do without because of insurance.'
Louisiana's waterlogged history makes it number one in the nation for repeat flooding for properties covered under the NFIP. According to data from the Federal Emergency Management Agency and the Natural Resource Defense Council, just over 43,000 properties have filed multiple flood insurance claims over the past 10 years.
Jefferson and Orleans parishes have the most NFIP repeat flood claims in Louisiana, with about 40% of the state's total over the past 10 years. With aging infrastructure and low-lying areas prone to hurricane damage, both parishes often flood.
The key to curbing flood disasters is prevention, said Michael Hecht, CEO of the regional economic development nonprofit group Greater New Orleans Inc.
'The long-term solution is mitigation, both individual mitigation at the structure level and community mitigation, up to and including federal levees,' Hecht said.
Mitigation — raising homes, improving drainage or constructing levees — can break the cycle of flooding. But the process of elevating a home, one of the most popular mitigation strategies, can be expensive and difficult.
Only 22% of the over 43,000 properties in Louisiana that have filed at least two NFIP damage claims have reduced their risk of flooding by raising their structures. In Orleans Parish, which includes New Orleans, 82% of the 8,568 properties with NFIP repeat flooding claims have never had flood prevention updates.
Climate adaptation is very central to our insurance crisis. Every year is going to be riskier than the last … and insurers are well aware of that.
– Caroline Kousky, Insurance for Good
Most people want to protect their homes from flooding, but affordability can make the path to home protection hard to navigate. FEMA offers various types of grants for repeatedly flooded properties, but these grants often require years to secure. Additionally, property owners must maintain current flood insurance policies to qualify, a challenge, given soaring premiums.
'With Risk Rating 2.0, our main concern with it right now is that it does not reliably incentivize mitigation,' said Peter Waggonner, public policy director for GNO Inc.
'Households or communities are saying 'well, we're doing this work in risk reduction, and we're not seeing a change in the insurance market,'' said Carolyn Kousky, founder of the nonprofit advocacy group Insurance for Good.
She said despite individual mitigations like home elevations qualifying people for discounts, the models used for assessing risk under Risk Rating 2.0 aren't accounting for efforts to mitigate flood risk in a timely enough way at a community level to reliably incentivize mitigation.
'Sometimes the best approaches for managing flood risk are community based approaches' like levees and wetland restoration, Kousky said. The NFIP allows for communities to earn points on their Community Rating System, but Kousky identified a 'gap' in making sure new flood models target rate reduction to individual property owners rather than to a whole community.
'We are not seeing [Risk Rating 2.0] account for that in a timely way right now,' she said.
Lack of transparency as to how Risk Rating 2.0 evaluates risk stands at the center of Louisiana's flood insurance crisis.
St. Charles Parish sued FEMA in 2023 over the agency's failure to provide information on how flood risk was assessed for homes with increasing premiums. FEMA responded to the suit, saying the data used was proprietary information purchased from a private company.
'There's an utter lack of transparency [and] the affordability guidelines or guardrails are not in there right now,' Waggonner said. 'You do risk pricing working-class or people on a fixed income out of their home over time.'
In congressional hearings, Hecht has criticized the program and demanded reform, calling NFIP 'unaffordable, inaccurate, and contradictory to the environmental and economic wellbeing of our country.' He said 'flood insurance is a slow moving glacier of destruction of real estate value' for New Orleans and other flood prone areas of Louisiana.
Louisiana lawmakers also continue to push for solutions.
Sen. Kirk Talbot, R-River Ridge, who leads his chamber's insurance committee, has said Risk Rating 2.0 is 'screwed up' and is working to coordinate national efforts to address insurance affordability.
But Rep. Tim Kerner Sr., R-Lafitte, still thinks the mitigation projects are worth the investment, despite the high cost of flood insurance. His waterfront town, even though it's surrounded by a 'ring' levee, routinely floods during most storms.
'People continue to suffer,' Kerner said. 'We've got to protect the people, help them with mitigation, help them get their houses raised … I'm hoping we have a special session to tackle these issues.'
Kousky said in order to facilitate systemic solutions, there need to be more tools to lower flood risk and consideration for what it means 'to live in a high risk area' like Southeast Louisiana.
FEMA recently introduced a customer support tool to help address some of the transparency problems with risk assessment, hoping to share rate calculations directly with individuals who then seek out an insurance agent and make coverage more affordable.
But the tool doesn't allow people to check beforehand what discounts they could get for elevating a home before getting flood insurance, said Waggonner, 'so there still is not that communication and transparency in terms of what I would get if I were to flood proof or make some upfront investment into my property.'
Some proposed solutions meant to address the affordability issue with the NFIP include means-based assistance programs or offering monthly installment payments instead of discounting premiums.
A Government Accountability Office report from 2023 suggested a similar approach, recommending that Congress work to start 'replacing discounted premiums with a means-based assistance program that is reflected in the federal budget.'
Kousky reiterated that, along with addressing pricing equity in flood insurance, officials also need to be talking about climate change.
'Climate adaptation is very central to our insurance crisis,' Kousky said. 'Every year is going to be riskier than the last … and insurers are well aware of that.'
She emphasised how a warming climate and the insurance crisis are inextricably linked and, while building resilience into communities with mitigation measures and careful development is hard, 'we can't solve the current insurance crisis without much more substantial, serious attention to what it means to build and live in a higher risk area.'
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This story is a product of the Mississippi River Basin Ag & Water Desk, an independent reporting network based at the University of Missouri in partnership with Report for America, with major funding from the Walton Family Foundation.