How U.S. Taxpayers Subsidize Living & Working in High Flood-Risk Zones

3 October 2024, by Eric Zuesse

The U.S. federal Government makes difficult if not impossible for a person who is considering whether to move into a high-risk flood area to find out that it is that, and this difficulty is part of the U.S. Government’s larger goal of transferring onto the public all risks that the private sector — basically insurance corporations — have not found to be profitable to insure, so that U.S. taxpayers (and not only U.S. consumers) take the losses from these unprofitable-to-insure dangers. This is a governmental system that enables the wealthiest to shift onto the general public these individuals’ likeliest losses, such as in cases where an individual gets federally subsidized flood insurance, builds and rebuilds in a high-risk flood zone, and then the taxpaying public ends up funding most of the costs of dealing with the devastation that occurs from the predictable massive flooding there. This is a way of transferring a large portion of these massive losses onto the general public — investors here taking the gains for only themselves, while spreading the pains to the general population; and, so, too, thereby increasing wealth-inequality in America.  

This is the way the system works in America:

On 2 October 2024, CNN headlined “Asheville was called a climate haven. Helene shows nowhere is safe”, and reported:

Asheville [North Carolina] was touted as a climate haven, a place to escape the worst ravages of extreme weather. But Hurricane Helene’s deadly path of destruction reveals this North Carolina city, like any in America, was never safe — it’s just that memories are short and the reach of the climate crisis is consistently underestimated.

“If you live in a place that can rain, you live in a place that can flood,” said Kathie Dello, North Carolina’s state climatologist. The past week has shown that reality starkly. …

It’s all a far cry from the image that some media outlets, real estate agents and residents painted of Asheville, located hundreds of miles from the Atlantic Ocean and Gulf of Mexico: a place relatively safe from the climate extremes affecting other parts of the US.

So-called climate migrants have long been arriving here from places like California, Arizona and the coastal Carolinas, said Jesse Keenan, associate professor of sustainable real estate and urban planning at Tulane University.

In online forums discussing where to escape heat, floods and fire, Asheville consistently comes up. One poster wrote in 2019, they didn’t want “to be in a place that has constant threat of natural disasters that will destroy our property so we are planning on moving to (the) Asheville area.”

Even the climate experts who call Asheville home believed they were insulated from the worst risks. Susan Hassol, a veteran climate change communicator and science writer, said she and others “have labored under the illusion that we live in a relatively climate-safe place.”

But in a world reshaped by human-caused global warming, no place is truly safe and Helene had the “fingerprints of climate change” all over it, Dello told CNN. …

Asheville, in the foothills of the Blue Ridge mountains and at the intersection of two major rivers — the French Broad and the Swannanoa — is vulnerable to flooding, as a long history attests.

In 1916, back-to-back hurricanes dumped relentless rain on Asheville and other parts of western North Carolina, triggering biblical flooding that washed away houses and killed around 80 people.

Almost exactly the same scenario played out in 2004, when tropical storms Ivan and Frances tracked along the Appalachians. Both systems concentrated their highest rainfall on western North Carolina, killing 11 people.

More recently, Tropical Storm Fred caused catastrophic flooding in 2021, prompting a major disaster declaration. …

But, while Helene may have undone the idea of a “climate-safe” city, Tulane University’s Keenan does not believe it will ultimately dampen people’s desire to move here. “I think this is actually going to accelerate this process,” he said.

In a tragic twist, disasters like hurricanes “clean the slate” for developers and investors to come from outside and buy up properties relatively cheaply to redevelop into denser, more expensive homes, Keenan said.

“People have pretty short memories on this stuff. There are always people who are willing to take a risk,” he said. “This is the story of American post-disaster development.”

Even the Wikipedia article about Asheville notes that “Asheville is located in the Blue Ridge Mountains at the confluence of the Swannanoa River and the French Broad River.”

So, I decided to Web-search the phrase "how taxpayers subsidize flood insurance,” and came up with only a single find, which was from 29 May 2015: an article “Flood Insurance in Texas and Oklahoma”, by the ‘environmentalist’ ‘non-profit’ National Resources Defense Council. It said:

The floods that have been affecting large parts of Texas and Oklahoma are bringing several questions to the forefront about the National Flood Insurance Program and participation in those states. This information also illustrates some of the challenges the program faces, such as a ballooning deficit ($23 billion) and the need to phase-in risk based prices while phasing-out costly subsidies.

NRDC has become an active and vocal participant in the debate on flood insurance. The risk of flooding is increasing as a result of sea level rise, changing precipitation patterns, and other climate change related impacts. The National Flood Insurance Program should be one of our best tools for preparing for adapting to climate change, but instead it's a huge liability.

Recently, NRDC proposed novel reforms to the NFIP that would make it easier for people to move away from areas at greatest risk of flooding. The reforms we recommend could transform the NFIP from a program that prolongs flood risk in Texas, Oklahoma and elsewhere, and is a serious fiscal liability, into one of the best tools the nation has to prepare for the impacts of climate change, while also decreasing our current and future vulnerability to floods.

But until major reforms are made, we're left with the situation as it now stands. Hopefully, floods like these can provide insights into changes we need to make to better cope with the rising risks of floods. …

Unfortunately, a lot of people don't bother to purchase flood insurance. In a story on flood insurance that appeared in the International Business Times, a spokesperson for the Insurance Council of Texas stated, "I think less than half of the homeowners affected [by recent floods] had flood insurance."

There are a lot of reasons for lack of coverage. Some people don't realize they live in a floodplain. Others mistakenly believe their homeowners policy will cover flood damages. Even among property owners who have federally backed mortgages and are legally required to maintain coverage, many don't. FEMA and the banks who hold the loans don't rigorously enforce this requirement. Lack of coverage means people don't have the assistance they may need and it means fewer people are paying into the system, leaving fewer people paying premiums to cover the claims. …

There's been a lot of debate about how taxpayers subsidize flood insurance, making it cheaper for people in flood prone areas to pay for coverage. How many subsidized policies are in the counties affected by the recent floods?

About 20% of the 5.5 million policies in effect across the nation pay subsidized rates. In other words, those policy holders do not pay the true risk based price for insurance. Because of recent reforms in Congress, many who have subsidized insurance will slowly be transitioned to risk-based prices. … 

On 13 December 2023, Skadden, the major accounting firm, Skadden, Arps, Slate, Meagher & Flom, headlined “Climate Change and Its Undeniable Impact on Insurance: How To Respond?” It said:

The increase in severe weather events predicted by most climate scientists is likely set to significantly impact the insurance industry by affecting the ability of underwriters to measure, predict and apportion risks. …

Understanding their current exposure to risks associated with climate change is the first step. The U.K. Prudential Regulation Authority (PRA) is set to run a dynamic general insurance stress test in 2025, which will:

- Assess the insurance industry’s solvency and liquidity resilience to a specific adverse scenario. The stress test will involve simulating a sequential set of adverse events over a short period of time.

- Evaluate the effectiveness of insurers’ risk management and management actions following an adverse scenario.

- Inform the PRA’s supervisory response following a market-wide scenario.

Insurers should use the findings from this test to inform their approach to the market and see how protected they are against climate-related losses.

In the U.S., the National Association of Insurance Commissioners (NAIC) has established a Climate and Resiliency Task Force to serve as the coordinating NAIC body for discussion and engagement on climate-related risk and resiliency issues, including dialogue among state insurance regulators, the insurance industry and other stakeholders.

On a more individual level, insurers should themselves adopt climate-specific stress testing to inform their pricing and make portfolio adjustments. By utilizing predictive analytics such as geospatial tools, insurers can make a more detailed assessment of where (geographically) wider protection may be needed, thereby helping to bridge the protection gap.

For example, if insurers are able to more accurately map out where the risk of tsunamis is higher due to tectonic plate patterns, they will be able to apportion risk in a more nuanced way and thereby offer their customers policies that are more tailored to the risks those customers face.

Insurers should themselves adopt climate-specific stress testing to inform their pricing and make portfolio adjustments.

Insurers can also aid their clients by developing enhanced and innovative insurance products. A leading consulting firm has suggested that the insurance industry currently does not capture the full spectrum of potential losses that are a result of severe weather events. With the use of artificial intelligence, firms can parametrically (i.e., by using statistical estimation techniques) price their policies to take such overlooked losses into account. Doing so would help mitigate the effect on generic, unspecialized protection.

Insurance companies can also encourage their policyholders to take initiative. For example, by urging their clients to install anti-flood doors or early warning systems, insurers can help their customers mitigate risk. They can then charge such companies lower premiums, thereby offering better coverage while maintaining a steady supply of insurance products.

Government Collaboration

A unique opportunity also exists for insurance companies to diversify the role they play in the economy. They can collaborate with governments to create agreements on how to apportion risks between public and private institutions. Further, insurers can work with government authorities to put measures in place for financial assistance in the case of an unexpected mass payout caused by an unforeseen crisis, similar to the Flood Re scheme in the U.K. Under this joint initiative, the U.K. government works with private insurers to provide reinsurance for areas with particularly high flood risks.

Such collaborative arrangements are not uncommon — in the U.S., the National Flood Insurance Program performs a similar coordination function.

And here is how America’s flood-insurance program, which is under the Federal Emergency Management Agency (FEMA), actually works or doesn’t work:

I first Web-searched “National Flood Insurance Program,” and came to “National Flood Insurance - FEMA Flood Insurance,” and then I came to https://www.floodsmart.gov/flood-risk, which is so user-hostile a site, that it has no link to flood-risk maps or data concerning an inquiring person’s question as to what the actual flood-risk rating is of one’s particular location.

Finally, I found my way to a chatbox there, and had the following conversation:

https://msc.fema.gov/portal/resources/contact

FMIX Specialist

Chat started at 9:40 AM

An FMIX specialist will be with you shortly. Thanks for your patience.
Thank you for contacting the FEMA Mapping and Insurance eXchange (FMIX). How may I assist you today?
FMIX Specialist
What zone is [my specific address] ?
To view the current Flood Insurance Rate Map (FIRM) for your area of interest, you may search by street address or place on the FEMA Flood Map Service Center at https://msc.fema.gov/portal/search. The search results will display the best map information for the location entered and will note if digital flood hazard data is available.

If digital flood hazard data is available for your area of interest, flood hazard information will be shown in the map near the bottom of the webpage. 

If no digital maps are available, you may select either the View/Print FIRM icon to view the map with the online viewer or the Download FIRM Panel icon to download the map to your computer.
FMIX Specialist
9:42 AM
Why isn't that map being shown here, at https://www.floodsmart.gov/flood-zones-and-maps ?
9:43 AM
Floodsmart.gov contains general information regarding flood maps. The flood maps are available at https://msc.fema.gov/portal/home
FMIX Specialist
9:44 AM
That site allows one to access the local map but doesn't explain how to read it. With AI or otherwise, it ought to provide a verbal rating of my home's flood-risk but it does no such thing. Why?
9:47 AM

The FEMA Flood Map Service Center does not produce a map that is specific to an address. The address search tool uses geocoding, which approximates the street location to determine the best flood map for the area. The digital map displayed near the bottom of the web page is interactive. You can select adjacent map panels as needed to better view the property.
9:50 AM
Legends are available on the maps. However, I do apologize that it appears that the flood maps are running very slowly at this time and to try back later.

We would recommend contacting the local building department to inquire about a flood zone specific to a structure.
FMIX Specialist
9:52 AM

I ultimately contacted the “local building department,” and it turned out to be a person who hadn’t lived in my area for the past twenty years, and who had died more than ten years ago.

So, since FEMA provided no meaningful information about flood insurance, I contacted the insurance company that provides our homeowner insurance, and my local agent there tried to contact FEMA for answers, but was no more successful at it than I was. This is interesting because FEMA’s flood insurance can be purchased only from five private insurance companies who have made deals with FEMA: Amica, Farmers, Nationwide, Allstate, and Liberty Mutual. (My agent wasn’t from any of those five.)

However, I finally managed to find the FEMA map of county-by-county “Risk” (it didn’t clarify what TYPE of “Risk”). It’s at

https://hazards.fema.gov/nri/map 

I first checked there to find Asheville, the flooded-out city in Buncombe County. That map showed:

Buncombe County

North Carolina

Risk Index Expected Annual Loss Social Vulnerability Community Resilience 

Risk Index is
Relatively Low

Score

81.48

National Percentile

81.48

Percentile Within North Carolina

67.00

The Risk Index rating is Relatively Low for Buncombe County, NC when compared to the rest of the U.S.

Under “Hazard Type Risk Ratings” for Buncombe County, the ONLY listed type of “Risk” which had the word “flood” in it was “Coastal Flooding,” and that risk was rated “Not Applicable.” SO: the entirety of Asheville’s flood-insurance risk-rating is based upon ignoring Asheville’s actually high risk of disastrous flooding, which risk comes from that city’s rivers, NOT from anything specifically “coastal.” This means that the way the U.S. Government’s formulas determine the prices of federal flood insurance is designed so as to IGNORE any flood-risk that isn’t “coastal.”

Thus, America offers its investors a feast of pump-and-dump opportunities (such as “In a tragic twist, disasters like hurricanes ‘clean the slate’ for developers and investors to come from outside and buy up properties relatively cheaply to redevelop into denser, more expensive homes” — and to thereby go through the pump-and-dump till the next flood comes), not only in the stock markets (which are commonly recognized as providing plenty of opportunities such as that), but in the real estate markets too. This is a governmental system that places the concern for investors above (far above) its concern for the general public (who get left holding the bag).

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Investigative historian Eric Zuesse’s latest book, AMERICA’S EMPIRE OF EVIL: Hitler’s Posthumous Victory, and Why the Social Sciences Need to Change, is about how America took over the world after World War II in order to enslave it to U.S.-and-allied billionaires. Their cartels extract the world’s wealth by control of not only their ‘news’ media but the social ‘sciences’ — duping the public.