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It has been over a week since flooding ravaged parts of Connecticut and the incident highlighted the rising costs associated with these weather events.
The White House declared the flooding in Fairfield New Haven and Litchfield counties a federal emergency. The declaration means that state agencies can coordinate with the Federal Emergency Management Agency (FEMA) on the deployment of federal personnel and equipment to boost emergency recovery efforts already underway by the state and its municipal counterparts.
“This federal emergency declaration means that additional equipment and crews could be mobilized to Connecticut to support our many state and local crews who have been on the ground working to repair damaged roads, bridges, and dams, and also clean up waterways that have been contaminated by all kinds of hazardous items from the storm,” Gov. Ned Lamont said in a statement. “There is still much work to do to repair and reopen the roads and make sure those who live in the area remain safe, and we are committed to completing this task.”
In situations when flooding affects homes, a lot of the buck is passed onto the National Flood Insurance Program. This is required if a property resides in a flood plain.
For residential properties, homeowners can secure coverage up to $250,000 for the building and $100,000 for the building contents according to the National Flood Insurance Program’s website. For commercial properties, the owners of the property can secure coverage up to $500,000 for the building and $500,000 for the building contents.
As of July, 20,294 single-family home policies were active in Connecticut through the National Flood Insurance Program, according to FEMA.
Financial institutions receive updates throughout the life of a mortgage to ensure that a property still remains outside of a flood plain or they are alerted that a property is now at risk of flooding. If a property enters into a flood plain, institutions by law have to ensure that the home possesses the proper flood insurance.
As climates continue to change, it appears that more and more properties will be residing in these flood plains. In some cases these are causing people to leave certain areas.
First Street Foundation reported in 2023 that 113 million people live in areas where flood risk has already been impacting housing choice, and in extreme cases have left the area due to flooding concerns.
High flood risk areas that are currently seeing population growth are forecasted to become “Climate Abandonment Areas” and see population loss in the future according to First Street. These emerging areas are made up of blocks expected to hit the risk “tipping point” in the near future and by 2053, a cumulative population loss of 5 million residents across the country.
“The population exposure over the next 30 years is a serious concern,” said Evelyn Shu, senior research analyst at the First Street Foundation and lead author on the paper. “For decades we’ve chosen to build and develop in areas that we believed did not have significant risk, but due to the impacts of climate change, those areas are very rapidly beginning to look like areas we’ve avoided in the past.”
With more homes falling into flood plains and could end up in flood plains, Guaranteed Rate Insurance Executive Vice President and head of insurance Jeff Wingate indicated that they are having conversations with customers regarding flood insurance even if they fall in a “low-risk” zone where the insurance isn’t required.
“On the insurance side, we are offering flood insurance through the private flood market for every property if it is in a high risk zone or even low risk zone,” he said. “With all the extreme weather and excess rainfall, we are having these conversations with our customers to help them prevent financial loss.”
No Discrimination Amidst Higher Risk
While houses that reside in flood plains and by the water will be at greater risk of flooding, Frank Crinella, executive vice president, chief lender and chief credit officer, stated that PeoplesBank will not discriminate based on where a particular property resides.
“We mitigate the risk through the appropriate channels,” he said. “So, I feel for the people down in Connecticut that experienced what they did during those torrential rains. I can only speak to our bank, we would never discriminate against financing a property because it’s in a flood plain.”
Crinella also acknowledged that while homeowners might be concerned that they won’t be able to find financing after a home has been damaged by flooding, PeoplesBank will still lend to those property owners.
“‘How do I carry a mortgage going forward? Or is a bank going to be willing to finance the property going forward if I were to sell it?’ I can tell you that we don’t discriminate against properties and flood loans,” he said. “We just do our homework like most of the banks, and make sure that appropriate coverage is in place.”
Like any natural disaster, flooding is costly. According to First Street, flooding in the United States has cost over $1 trillion in inflation adjusted dollars since 1980 and represents more than 63 percent of the cost associated with all natural disasters that do $1 billion or more in damage.
But that cost can also be passed on to the consumer. Last year, FEMA implemented the a new National Flood Insurance Program pricing approach, called “Risk Rating 2.0.”
“The approach leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are actuarially sound, equitable, easier to understand and better reflect a property’s flood risk,” FEMA’s website states.
Under these revamped guidelines, the median “risk-based” premium reflecting a “full actuarial rate,” in Connecticut according to FEMA was at $2,514 up from $1,174. This is the third-highest rate in the country for flood insurance behind Hawaii and West Virginia.
Blair Bernstein, senior director of the American Bankers Association believes that consumers and banks can work to limit costs.
“Where flood insurance is required, banks work with consumers to properly structure home financing arrangements to maximize affordability,” he said. “This analysis involves tailored examination of the consumers’ financial state and their ability to afford a loan product – including the required costs, like insurance, that accompany that loan. Where there is elevated risk of loss from flooding, the insurance serves as crucial protection for the consumer as well as the lender. Consumers can reduce their future and current insurance costs by taking steps to learn about and minimize flood risks. Banks help consumers by offering proper guidance, education, and presenting the responsible choices that lead to sustainable and safe homeownership for our customers.”
