June 26, 2012
State sea-level rise policy won't affect insurance rates
By CATHERINE KOZAK
Coastal Review Online
of the N.C. Senate’s now-infamous sea-level rise bill warned that
property insurance rates would go through the roof if the state were
allowed to plan for the three-foot rise in ocean levels that most
scientists expect by the end of this century.
insurance industry in the state is caught in the middle of an issue
that could have enormous impact on their future bottom line ---
depending on what happens to the fiscally-troubled National Flood
Insurance Program. Those in the insurance industry, however, doubt that
legislative action on sea-level rise will have any effect on property
state of North Carolina doesn’t tell the National Flood Insurance
Program how to set the rates,” said Fletcher Willey, owner of a Nags
Head insurance agency. “A bill in the North Carolina General Assembly
does not mean anything to the National Flood Insurance Program.”
But there’s no guarantee that private insurers won’t have to provide flood coverage in the future.
in the business of insuring property are at a loss, so to speak, on how
to respond to a potentially dire but slow-moving threat that is
buffeted by powerful, and conflicting, political winds. Not only
could the risk, whatever it is, be far in the future, it is currently
more the federal government’s headache than that of any private insurer.
perils we insure against are wind, lightning and hail,” said Ray Evans,
general manager of the N.C. Rate Bureau. “As a result, the rising sea
levels really do not come into our calculus.”
the National Flood Insurance Program by default insures nearly all
property in flood zones nationwide against flooding, one of the
proposed reforms of the program is privatization.
Beach Plan, a state-run pool of private insurance companies in the
state, provides wind and hail coverage for most property along the
Schwitzgebel, general manager of the N.C. Joint Underwriting
Association and the North Carolina Insurance Underwriting Association
-- the official name of the Beach Plan -- said in an e-mail that, by
law, rates are set by the Rate Bureau, with an added surcharge of 5
percent for wind and hail coverage and a 15 percent surcharge for
said that the statute provides the framework under which the bureau
operates, and lawmakers can change the law however and whenever they
see fit. “It’s how we exist,” he said. “They have a great deal of
The insurance commissioner has some discretion in implementation of the law, Evans said, but he must abide by the statute.
State Insurance Commissioner Wayne Goodwin, through a spokesperson, declined to comment.
general, climate change and its potential impact have gotten the
attention of the insurance industry, which is immediately concerned
about property damage from disasters created by increased storm surge
and wind destruction from powerful hurricanes and tornados. Sea level
rise as a specific issue is not yet an action item.
our perspective, it’s hard for insurance companies to figure out how
rising sea levels might affect risk of loss in coastal areas because
it’s proceeding at such a slow rate,” said Robert Detlefsen, vice
president of public policy for the National Association of Mutual
Insurance Companies, a national trade association that represents 1,400
members. “And insurers, when they write homeowners policies, they are
writing policies that are in effect for 12 months.”
companies establish rates by studying historic data, he said. In the
last 10 years or so, actuaries have also been using catastrophe models
developed by specialized firms that incorporate climate and other data
to calculate projections.
Even with the best data, he said, the industry is still subject to political will, especially if a rate hike is requested.
the rate increase is denied, and the insurance providers -- as happened
in North Carolina -- decide to no longer provide the coverage.
company wants to go insolvent,” Detlefsen said, adding that sometimes
states force companies to provide coverage. “That question helps to
explain why insurers are very much interested in the health of the
National Flood Insurance Program.”
is notoriously difficult to predict and extremely expensive to insure
against, which is why Congress by necessity in 1968 created the federal
flood insurance program. The intent was to reduce flood damages with
better management while providing an affordable flood insurance program
for property owners.
companies now require federal flood insurance policies in flood-prone
areas. Critics of the program say that numerous property owners file
claims year after year for repeated damage, and that the artificially
low premium rates in effect subsidize irresponsible development in
areas subject to flooding.
statute, the program is barred from projecting any future consequences,
so floodplain maps and models do not account for potential sea level
rise, or projected erosion rates.
in 2001, North Carolina became the first state to write the state
floodplain maps for the Federal Emergency Management Agency, working as
a cooperating technical partner, said Randy Mundt, outreach coordinator
for the N.C. Floodplain Mapping program at the state Department of
then, he said, floodplain maps, which are available digitally online,
have been updated in all 100 counties. The goal is to update them every
five years, and so far eight counties have preliminary new updates. The
30-year-old coastal flood hazard model used in mapmaking is also in the
process of being updated.
As a result, he said, the state has some of the most accurate floodplain maps in the nation.
“We’ve had great leadership and support for this,” Mundt said, “which has saved taxpayers an enormous amount of money.”
said determination of base flood elevation is calculated by the current
conditions, and the frequent map updates reflect changes in conditions.
Although FEMA maps are snapshots of “today,” communities have the
option to adopt a flood damage prevention ordinance that would require
consideration of projected future conditions in development standards.
County, Greensboro, Wilmington and Cary, which are affected by riverine
flooding, have such plans in place, but Dare County, which statewide
has the highest coverage amount of flood insurance, does not.
to statistics on the FEMA website, as of April 30, 2012, unincorporated
Dare County had 10,192 federal flood insurance policies in force,
covering $2,434,993,100 worth of property, with $6,280,109 in premiums
paid for the policies. The second-highest property coverage statewide
was in unincorporated New Hanover County, with $1,519,013,900.
the 2012 Dare County Land Use Plan, it states that the county planning
board decided to “reserve judgment” on initiatives addressing the
potential threat of rising seas “due to the lack of consensus on the
issue” and the ongoing debate about the impacts of climate change and
2001 FEMA report on how the national flood insurance would be impacted
by a rise in sea level, based on United Nations projections of a 1-foot
to 3-foot increase by 2100, concluded that the rating system could
readily respond to a 1-foot rise, and would have until 2050 before
seeing impacts of a 3-foot rise.
report recommended that FEMA should continue to monitor scientific
projections on future changes in sea level and encourage measures that
mitigate the impacts of sea level rise.
60-year timeframe over which this gradual change occurs provides ample
opportunity for the NFIP to consider alternative approaches to the loss
control and insurance mechanisms of the NFIP and to implement those
changes that are both effective and based on sound scientific
evidence,” the report said
report, assuming continued development trends, estimated the increase
in the expected annual flood damage by 2100 for a representative
insured property subject to sea level rise at 36 percent to 58 percent
for a 1-foot rise and 102 percent to 200 percent for a 3-foot rise.
this week, a FEMA spokesperson, speaking only on background in an
e-mail, said that data on sea-level rise, although not reflected on
flood insurance rate maps, does incorporate the most current available
flood hazard and risk data and applies the latest available science.
story is provided courtesy of Coastal Review Online, the coastal news
and features service of the N.C. Coastal Federation. You can read other
stories about the N.C. coast at www.nccoast.org.)