On January 4, 2022, California entered a state of emergency due to an atmospheric river event that began in late December. After years of drought conditions in the western states, California began 2023 entrenched in record-level flooding for months on end. Thousands have been evacuated, nearly two dozen have died, and the estimated damages exceed $1 billion. Fewer than 200,000 residents, or less than 2% of the state’s population, have flood insurance to offset the property damages.
Understanding flood insurance
Many assume that flood insurance is included in the typical homeowner’s insurance policy, but it’s not. A recent study showed over 45% of adults expect flood insurance to be included in their homeowner’s policy. In reality, a federal system, the National Flood Insurance Program (NFIP), accounts for 95% of the flood insurance policies issued in the U.S. The Federal Emergency Management Agency (FEMA) requires federally unwritten mortgages with a 1% annual risk of flooding to carry flood insurance.
Flooding in California
The FEMA maps designating special flood hazard areas are purportedly out of date. California’s maps were last updated in the early ’90s. Researchers estimate that nearly 6 million at-risk homes and about 80% of the state’s streams and rivers are located outside of FEMA’s hazard areas. Throughout the first quarter of 2023, many places in California received four to six times above-average precipitation. The catastrophic floods in January put 90% of the state under flood watch.
Historic drought conditions notwithstanding, California’s decline in flood insurance policies reflects a national trend. Partly fueled by climate change, the NFIP had been struggling with debt, so FEMA attempted to make its pricing model more equitable by adopting Risk Rating 2.0 in October 2021. The state paid less as a whole while most residents paid up to $100 more per month.