Rising climate risks require changes in insurance markets to protect taxpayers and homeowners

Two recent reports show how flooding disasters pose increasing threats to millions of Americans, especially among communities least equipped to handle the steep costs and risks of climate change. These reports, by the Congressional Budget Office and the First Street Foundation, underscore the intersection of climate change and fiscal responsibility, particularly for communities of different economic and demographic profiles.

On Long Island, numerous homeowners have endured flood insurance premium spikes over the past two years, with future annual increases up to 18%. Fire Island continues to suffer costly erosion from one storm to another, illustrating the risks from rising sea levels and flooding afflicting coastal communities nationwide.

Examining flood risks across diverse communities, the nonpartisan CBO concluded that premiums must reflect actual risks — and costs of rebuilding — to protect property owners and taxpayers whose tax dollars subsidize the National Flood Insurance Program.

The CBO reports that the NFIP has hiked rates nationwide to keep up with growing payouts versus premiums due to increased exposure from climate disasters. In 12 states, the average premium has more than doubled; about 68% of New York policyholders are seeing rate hikes of varying degrees.

Long Island Reps. Andrew Garbarino, Nick LaLota and Anthony D’Esposito are among congressional leaders of bipartisan efforts to arrange more affordable payment options for federal NFIP policyholders. But more affordable doesn’t equal less risk.

The report by the First Street Foundation, a nonprofit focused on weather risk research, confirms the growing financial risks associated with climate change. Underpricing climate risks in the real estate market creates an unrealistic “climate bubble” through taxpayer subsidies that often flow to wealthier homeowners, affecting the affordability and insurability of millions of properties. Climate change, combined with rising construction and reinsurance costs, has outpaced price increases that regulators allow insurers to pass along to policyholders, making entire markets uninsurable.

The property insurance industry is already starting to pull back coverage in high-risk areas, most notably Florida and Louisiana. Though state regulatory policies suppress some insurance price spikes, rising claim costs are causing increased rates for homeowners, reducing property values and ownership affordability. State-backed “insurers of last resort” are increasingly the only option, but even they are raising rates due to heightened risks.

Taxpayers for Common Sense, a nonpartisan federal budget watchdog, has testified before Congress about the NFIP, which provides subsidies for construction in risk-prone areas, making it seem economically “safe” to build and rebuild in medium and high-risk areas by reducing costs to developers. This has led to unwise development that contributes to catastrophic outcomes and increased costs for taxpayers.

More frequent coastal natural disasters take a disproportionate toll on poor and disadvantaged communities. A 2021 Redfin analysis found that the aggregate value of properties at high flood risk in formerly redlined districts was $107 billion, 25% more than the home value in other districts.

Policy options we advocate include:

• Improve flood mapping and risk analysis to determine risks and associated rates.
• Combine risk-based rates with subsidies based on need.
• Focus on mitigation and risk reduction, which we call “presponding” to predictable natural disasters.
• Encourage private flood insurance competition to provide more options for homeowners and reduce the burden on the NFIP.

The reports reveal a disconcerting trend: Flood risks are more prevalent in economically disadvantaged communities, insurance costs are rising for everyone, and the NFIP is ill-equipped for the challenges ahead. This should concern communities of all income levels and demographic profiles, because all taxpayers feel the pain as the federal government allocates costly emergency disaster aid all-too-routinely these days.

This guest essay reflects the views of Steve Ellis, president of Taxpayers for Common Sense.