By Todd Woody | Bloomberg
Californians are well-acquainted with the dangers of wildfires and earthquakes, but hurricanes are not typically a concern. However, the recent inundation of Southern California by Tropical Storm Hilary during the normally dry month of August is a stark reminder of the increasing financial risk that homeowners face from climate-related flooding. Standard homeowners insurance policies do not cover flooding, and less than 2% of California households have flood insurance, despite the increasing frequency and intensity of winter storms that overflow rivers, breach levees, batter the coast, and saturate the desert. Hilary, the first tropical storm to hit California in 84 years, dumped nearly a year’s worth of rain in a single day on Palm Springs, causing widespread flooding in the Coachella Valley.
“Nowhere is safe from flooding in California today,” says Firas Saleh, director of product management at risk modeler Moody’s RMS. Even communities located far from rivers and the coast are facing growing peril. Saleh, who analyzes climate-related flood risk, explains that “rainfall can happen anywhere”, leading to increased vulnerability to flooding due to changes in the frequency and intensity of rainfall. The situation is cause for concern, and it’s vital to understand flood risk and the available options to mitigate this exposure.
One of the reasons why so few Californians have flood insurance is the cost. When purchasing a house, the lender checks FEMA’s maps to determine if the property is located in a high-risk flood zone. In these cases, the lender may require the homeowner to obtain coverage through FEMA’s National Flood Insurance Program or from a private insurer. However, given California’s high home prices and rising insurance rates, many homeowners choose to forgo flood insurance if it is not required. Even those who are required to purchase flood insurance to obtain a mortgage may cancel the coverage in subsequent years without their lender noticing. The recent three-year drought, which ended with record-breaking winter storms, also made flooding seem like a distant threat to many residents.
According to Moody’s RMS, the National Flood Insurance Program writes 89% of residential policies in California, but private insurance accounts for 42% of premiums paid due to the higher value of those policies. However, federal coverage rates have been declining, with a 5% decrease nationwide since 2021. Saleh notes that there have been many cancellations in the last two years. For example, out of nearly 24,000 households in Palm Springs, only 167 were covered by federal flood insurance as of July 31. Similarly, only 66 out of 4,656 households in Capitola, a coastal town in Northern California, have federal flood insurance.
One of the reasons for the lack of flood insurance coverage is that FEMA’s flood maps do not fully account for today’s climate risks. These maps are based on historical, meteorological, and topographic data, which are insufficient to predict flooding accurately in the face of climate change. California’s alternating periods of drought and deluge have exceeded FEMA’s assumptions. Factors such as compacted soil in drought periods, lack of vegetation due to wildfires, intense and frequent storms, and increased snowfall in the mountains contribute to the heightened flood risk. Outdated flood maps that do not consider changing climate conditions and urbanization also contribute to the problem.
To protect yourself against flooding, you can check if your home is in a government-designated flood zone by visiting FEMA’s website. Homeowners in communities that participate in FEMA’s National Flood Insurance Program can purchase federal flood insurance through an insurance broker. Renters can also obtain flood insurance to cover personal possessions. FEMA recommends that everyone purchase flood insurance, regardless of their flood zone. Annual premiums for federal flood insurance are approximately $900, but it’s important to note that coverage only takes effect 30 days after purchase, and there are caps on payouts for damage to homes and belongings. If you live in a high-cost state like California, it may be worth considering private flood insurance for higher coverage levels.
“Homeowners really need to consider the financial implications of what could happen if their property floods and they have to pay out of pocket,” advises Saleh.
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