This article was produced in partnership with Poulton Associates and CATcoverage.com
Bethan Moorcraft, of Insurance Business, sat down with Craig Poulton, CEO of Poulton Associates and owner of CATcoverage.com, to discuss the inadequacies of FEMA’s flood maps.
The Federal Emergency Management Agency (FEMA)’s failure to update the United States flood maps – known officially as Flood Insurance Rate Maps (FIRMs) – that dictate mandatory coverage requirements under the National Flood Insurance Program (NFIP), leaves the owners of millions of seriously flood-exposed structures with a false sense of security, according to Craig Poulton (pictured), CEO of Poulton Associates, owner of CATcoverage.com.
At least 50% of seriously flood-exposed structures in the US are not included in the Special Flood Hazard Areas (SFHA)s identified in FIRMs, he claimed. Owners of these structures believe that if their flood risk was significant, they would be included within the boundaries of the SFHA, and so they often choose to go without flood insurance coverage, he outlined. This group usually finds out that they should have been included in the SFHA only after they have experienced a significant flood loss.
According to Poulton, the inaccurately drawn FEMA flood zone maps disallow the geographic spread of risk which is crucial to any flood insurance product. He is calling for a complete overhaul of the flood mapping system and for the maps to be redrawn as a vertical construct instead of a horizontal construct, which he believes would capture millions more structures and eliminate “guaranteed inaccuracy and unfairness” in the current horizontal flood maps.
FEMA uses FIRMs to designate SFHAs. Communities use the maps to set minimum building requirements, and lenders use them to determine flood insurance requirements. These SFHAs have at least a 1% chance of flooding in any given year, which means over a 30-year mortgage, there is a 30% chance of experiencing a flood.
All home and business owners in the FEMA-designated SFHAs with mortgages from federally regulated or insured lenders are required to buy flood insurance. The SFHAs are identified by the NFIP and are often influenced by local flood plain managers, who are the principal community administrators of flood loss reduction activities.
Poulton believes the NFIP does not place enough emphasis on encouraging consumer access to the private flood insurance market. While Poulton has great respect for the many “bright and well intentioned” folks at the NFIP, he says that the NFIP has demonstrated a consistent bias toward preservation of their flood insurance monopoly.
“The NFIP seems to want the current arrangement to stay in place,” he told Insurance Business. “They continue to draw highly inaccurate flood zones and leave out large numbers of people that should be buying flood insurance. This leaves the burden of purchasing flood insurance on about 50% of people who should be in a flood zone, while the other 50% are not required to participate in the geographical spread of risk. It is unfair to the people who have to buy flood insurance, it is unfair to the people who should have to buy flood insurance, and it’s unfair to the taxpayers who end up paying for the loss funding shortfall.”
Home and business owners in areas outside of an SFHA – in the moderate-to-low risk areas, indicated on FEMA flood maps with the letters ‘B’, ‘C’ or ‘X’ – are not federally required to purchase flood insurance, but it is still advised. Poulton’s argument is that too many property owners are either miscategorized or left out of flood zones altogether, meaning that a large portion of the population is simply unaware of its exposure to flood.
“People won’t buy flood insurance if they don’t understand their exposure, and usually, they must be required to buy it before they will do so,” he explained. “The NFIP is miscommunicating the risk of flooding to the approximate 50% of people left out of flood zones. They might be happy now that they don’t have to buy flood insurance, but if there’s a flood, I’m sure they would have preferred to know their risk and be adequately protected.
“FEMA and the flood plain managers continue to use horizontal flood maps when the flood plain is more accurately defined using pin drops on a map identifying structures which have a 100-year flood hazard exposure. The horizontal construct misconstrues flood risk. How many decades will we go on, knowing there’s a problem, but doing nothing about it? If we expand the geographic spread of risk and get more people buying flood insurance – either through the NFIP or the private flood insurance market – there would be more premium available to pay claims, which would result in an improved loss ratio and healthier outcomes for taxpayers, flood insurance buyers and the environment.”
Craig Poulton ([email protected]) is chief executive officer of Salt Lake City-based Poulton Associates, LLC, which administers various catastrophe-related insurance products, including the country’s largest private flood insurance program, the Natural Catastrophe Insurance Program at CATCoverage.com.