After Harvey and Irma, what’s the future of flood insurance?

Economy – PBS NewsHour

JUDY WOODRUFF: This hurricane season has seen one devastating storm after another. Harvey, Irma and now Maria have left communities in ruin in their wake and put a spotlight on the problems plaguing the U.S.’ National Flood Insurance Program.

That’s the subject Paul Solman tackles on our weekly economics series, Making Sense.

LENI SHUCHTER, Pequannock, New Jersey Homeowner: And, in 1984, that’s the roof we were taken off of.

PAUL SOLMAN: You went up onto this roof?

LENI SHUCHTER: Yes.

PAUL SOLMAN: Leni Shuchter lives in Pequannock, New Jersey, a little too close to the Pompton river, a tributary of the Passaic.

LENI SHUCHTER: We had — it was a 24-foot boat pulled up alongside the roof.

PAUL SOLMAN: And how long were you up there?

LENI SHUCHTER: About four hours.

PAUL SOLMAN: The spring storms of 1984 were a once-in-a-century event, which is why Shuchter had no flood insurance.

LENI SHUCHTER: It wasn’t classified a flood zone in 1972, when I bought the house.

PAUL SOLMAN: So then, after ’84, did you then get flood insurance?

LENI SHUCHTER: Yes. We had to, because what we were eligible for is a loan that was put out by the Small Business Administration, and part of that was you had to have flood insurance.

PAUL SOLMAN: As it turned out, the so-called 100-year floods moved up their schedule.

LENI SHUCHTER: We have had five occurrences since 1999.

PAUL SOLMAN: Five?

LENI SHUCHTER: Five. Four of them were I guess what they would call, 25-year floods. You know, they’re the ones that just went in our basement.

PAUL SOLMAN: So, that’s four 25-year floods in…

LENI SHUCHTER: Well, from ’99 to ’11, so in 12 years.

PAUL SOLMAN: And three 100-year floods in 27 years.

LENI SHUCHTER: Correct.

PAUL SOLMAN: She now had flood insurance and has received more than 110,000 federal dollars over the years, most recently $72,000 in 2011, after Hurricane Irene.

So how high did the water get here in the house?

LENI SHUCHTER: It came within an inch of the waterlilies.

PAUL SOLMAN: Too bad you didn’t have the bridge.

LENI SHUCHTER: Yes, let me tell you, the bridge would’ve been a savior, for sure.

PAUL SOLMAN: As Claude Monet himself would have known, his iconic pond at Giverny created by water diverted from local floods.

But here in New Jersey, the increasingly troubled waters have helped imperil the National Flood Insurance Program itself, which started sinking back in 2005, when Hurricanes Katrina, Rita and Wilma forced it to borrow $17.5 billion from the U.S. Treasury to pay claims.

Interest payments and later storms have since submerged the program, so that it’s now nearly $25 billion underwater, and that’s before Hurricanes Irma and Harvey.

The Gulf states, Texas, Louisiana top the list of repetitive loss claims, but the so-called Garden State is no slouch, ranking third in homeowners who file again and again.

JOHN A. MILLER, Water Resources Engineer: And again and again.

PAUL SOLMAN: On the banks of the Passaic River in Little Falls, New Jersey, flood expert John Miller.

JOHN A. MILLER: This is one of the ground zeros for flood repetitive claims. In this area, we had flooding in 2007, 2010, and 2011 twice.

PAUL SOLMAN: So how high did the river rise?

JOHN A. MILLER: The water’s about one foot right now. It came up another 13 feet, twice as high as I am tall.

PAUL SOLMAN: So the water came up — well, it would be almost to the second story of houses like that, right?

JOHN A. MILLER: Yes, certainly well over the first floor of those homes.

PAUL SOLMAN: Around Houston, only 15 percent of homeowners were insured against Harvey’s water damage, partly because the government’s outdated flood maps didn’t reflect the true risk.

In the Passaic Watershed, though, which has been flooding famously since 1903, about a third of homes are covered. And if built before the government started publishing flood zone maps in the 1970s and’ 80s, owners get a hefty discount.

Leni Shuchter pays only $200 a month for a risk that no private insurer would cover at anywhere near that price.

LENI SHUCHTER: The shed back here is 12-by-32. In 2011, that became an ark. And it floated. It broke down the fence.

(LAUGHTER)

PAUL SOLMAN: I don’t mean to laugh.

LENI SHUCHTER: And it ended up in the driveway.

PAUL SOLMAN: And this raises the question that prompted our trek to the Garden State: In bailing out homeowners like Leni Shuchter, are we taxpayers encouraging them to buy, and stay put, in places so flood-prone, it puts them, and taxpayers, at inordinate risk?

JOHN A. MILLER: Back in the 1960s, when the National Flood Insurance Program was created, the private market wasn’t insuring flood-prone areas.

PAUL SOLMAN: Because they were going to lose money on it, because…

JOHN A. MILLER: Because they were going to lose money. Flood risk is different than auto. It’s different than homeowners, fires.

PAUL SOLMAN: Because if insurers pay out more in claims than they get in premiums, they go broke. But in places like Pequannock or Little Falls:

JOHN A. MILLER: You’re in a floodplain, right? The people that are purchasing flood insurance are flood-vulnerable.

PAUL SOLMAN: That is, the people who are most vulnerable are the ones buying the insurance.

JOHN A. MILLER: Absolutely.

PAUL SOLMAN: And we’re talking up to $350,000 per claim. But then, if you provide insurance at below market rates, you’re encouraging people to come live in a dangerous place?

JOHN A. MILLER: That’s why the flood insurance program is not just an insurance product.

PAUL SOLMAN: From the get-go, that is, federal flood insurance included money for mitigation, measures to prop up substantially damaged homes, or tear them down.

JOE GOLDEN, Pequannock Township Engineer: We bought out approximately 75 homes here on both sides of the highway.

PAUL SOLMAN: Engineer Joe Golden, Pequannock’s point man for flood insurance. After Irene, the town, well, wised up, and secured funds to buy out the most flood-prone homes.

So, this is housing lot after housing lot reclaimed by nature.

JOE GOLDEN: Right.

PAUL SOLMAN: The other form of mitigation, elevating homes, at $100,000 to $200,000 a pop.

JOE GOLDEN: The larger holes up on the second story, that’s where they put the steel beams through, and where they put the jacks to jack the home up.

PAUL SOLMAN: Federal grants reimburse homeowners for the cost of raising their houses, and living expenses for several months while the work is being done.

JOE GOLDEN: Those openings that are near the ground, those are flood vents that allow water to go in and out during flooding. And that prevents the block from collapsing. That’s why FEMA’s giving us the money. They don’t want to pay out $80,000, and then we have another flood, and they pay another $80,000, we have another flood, and they pay another.

PAUL SOLMAN: So Pequannock now boasts a home with a Roman aqueduct.

JOE GOLDEN: This is particularly good for floodplain management because of the openness.

PAUL SOLMAN: A French chateau.

JOE GOLDEN: The whole bottom floor, they have made it look as if it’s living space, whereas it really is just storage space.

PAUL SOLMAN: A country cottage.

JOE GOLDEN: In my opinion, it’s probably the nicest elevation in the community.

PAUL SOLMAN: A colonial on steroids.

And how much is this house worth now?

JOE GOLDEN: This house recently sold, I’m told, for $490,000.

PAUL SOLMAN: Four hundred and ninety thousand dollars?

JOE GOLDEN: Yes, $490,000.

PAUL SOLMAN: Because it’s supposedly protected.

JOE GOLDEN: In a floodplain, yes. But it is protected. Their insurance is going to go way down.

PAUL SOLMAN: Down to about $600 a year, vs. up to $9,000 for the un-elevated, once federal subsidies are phased out.

But that still begs the big question: the continued role of government flood insurance even in the face of rising tides.

JOHN A. MILLER: Some do say that it encourages development in the floodplain. Some would say that it’s an affordability issue. Floodplains are some of the affordable properties.

PAUL SOLMAN: Well, but they’re affordable because they’re dangerous.

JOHN A. MILLER: That is right.

PAUL SOLMAN: Leni Shuchter wishes she’d been offered a buyout, but has applied for a grant to elevate instead.

The grant is for $196,000, more than her house is now worth.

So, if you didn’t have flood insurance, would you just leave?

LENI SHUCHTER: Probably not, because I wouldn’t be able to sell it.

JOE GOLDEN: Now, here’s our map that shows the areas that have been redefined as floodways.

PAUL SOLMAN: Pardon the metaphor, but a lot more people are going to be in Leni Shuchter’s boat once new government flood maps take effect.

JOE GOLDEN: We went from 250-feet floodway to now 3,000.

PAUL SOLMAN: Wow.

An additional 284 homes in tiny Pequannock, says engineer Joe Golden, hiked to the highest risk category of flooding just two weeks ago.

And in a hitherto dry part of town:

JOE GOLDEN: This purple area was added into the floodplain.

PAUL SOLMAN: And hadn’t been there before?

JOE GOLDEN: Hadn’t been there in the history of Pequannock. There’s 229 houses in that area. Any of these people go to sell their home, the buyer won’t be able to get his mortgage unless he purchases flood insurance. That house just lost $100,000 in value, just from producing these maps.

PAUL SOLMAN: And none of the people in these houses know that yet?

JOE GOLDEN: Not yet, no.

PAUL SOLMAN: Joe Golden believes the new maps go overboard, and has vowed to fight on behalf of affected homeowners.

RADLEY HORTON, Columbia University’s Lamont-Doherty Earth Observatory: The maps are showing you sea level rise in the New York region.

PAUL SOLMAN: Fact is, says climate scientist Radley Horton, even if Pequannock wins, its victory will probably be Pyrrhic. Though it’s away from the coast, where rising ocean levels would make it even more vulnerable, property values are at risk of plunging here, insurance of shooting up to reflect the true economic risk.

Is that fair, given all the uncertainty around the science of this?

RADLEY HORTON: Well, it’s probably not fair to the individuals. But with rising seas, more moisture in the air, we do expect to see areas that aren’t currently in the flood zone becoming vulnerable in the future.

And, in fact, we could see property values fall, not because water touches or doesn’t touch some of these homes, but because of systemic risk, the inability of insurance to cover all these assets, or investors finally realizing that a lot of critical infrastructure isn’t going to be fundable.

PAUL SOLMAN: And this prompted my last question: Why doesn’t someone like Leni Shuchter just move on, and out?

LENI SHUCHTER: Where would I move to?

PAUL SOLMAN: So, you’re stuck?

LENI SHUCHTER: Pretty much.

PAUL SOLMAN: For the PBS NewsHour, this is economics correspondent Paul Solman, reporting from the floodplains of New Jersey.

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