Poor towns pay more for flood insurance, report finds

Flood insurance premiums are measurably more expensive for policyholders living in low-income communities, a UMass study finds.

Catastrophe & Flood


Insurance agents and brokers assisting flood insurance policyholders may find a stark difference in premiums depending on income levels in the communities where they live.
According to a report released this week from the University of Massachusetts Dartmouth, wealthier communities boasting higher-value properties along the coastline typically pay hundreds of dollars less in premiums than homeowners in low income communities. In fact, under the National Flood Insurance Program, blue-collar Fairhaven, Massachusetts pays an average $1,800 a year for a policy –nearly a third-more than Edgartown, Massachusetts homeowners, who pay about $1,400 for the same policy.
Study author Chad McGuire says the reason for the differences in cost aren’t clear, but suggested that homeowners in wealthier communities are better able to afford the costs associated with elevating their homes on stilts as well as other preventive measures that can lower premiums.
Additionally, local governments in wealthier communities are more likely to build seawalls and set aside open space land thanks to the support of a high-income tax base.
Others say the age of the buildings – typically older in high-income communities and therefore built before flood maps were set in the 70s – may be causing the disparities.
Still, McGuire says these theories don’t explain the entirety of the differences. In the aforementioned example, the average homeowner in Fairhaven pays about twice what Edgartown residents do for premiums per $100,000 in property value - $820 versus $400. Both are coastal communities, and McGuire sys it’s unlikely the flood risk in Fairhaven is twice that of Edgartown.
“[NFIP] gives the greatest subsidy to the most expensive properties,” he told the Boston Globe. “There may be a lot of reasons for it, but the effect is still the same.”
Unfortunately, the history of flooding in the area means insurance agents working with homeowners are unlikely to find relief through the private market. Private insurers writing flood risk can refuse to sell policies in high-risk areas, while NFIP cannot.
Not all reviewers of the report agreed with the conclusions, however. US Representative William Keating told reporters the study cannot be trusted as it doesn’t consider all factors that go into setting NFIP rates.
“I don’t believe the conclusions in this paper are supported by the facts given,” Keating said in a statement. “But this is an important issue, and I am interested to hear the opinions of the scientists, experts and insurance professionals in our district who have been working on this issue for years.”
NFIP said it has received a copy of the report and is reviewing the findings.
The report comes as NFIP and the 80 insurance companies administering its policies have come under fire for not servicing homeowners properly. Departing NFIP Director Brad Kieserman even likened the program to a “melting iceberg.”

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