High-risk flood zones are expanding this year along significant stretches of Florida’s coastline. In Broward County, nearly 90,000 properties have been moved into a FEMA flood zone. But 80,000 of them were in such a zone prior to ten years ago, when FEMA moved them out – only to add them back in this year. Many will now have to purchase flood insurance.

Former Florida Deputy Insurance Commissioner Lisa Miller talks with the county floodplain manager for an explanation, the reporter who broke the story, and another reporter from Palm Beach County, which is fighting FEMA’s efforts to expand flood zones.

Show Notes

FEMA calls these high-risk flood zones Special Flood Hazard Areas (SFHA). They are designated on a FEMA Flood Insurance Rate Map as zones that begin with the letter “A” or the letter “V” for those living along the coast, subject to additional threat of storm surge. Properties in these zones supposedly have a 1% probability of flooding each year, or about a one-in-four chance every 25-30 years. Some refer to this as the 1-in-100-year flood probability.

FEMA’s 2024 updated maps have moved nearly 90,000 (88,913) properties in Broward County, Florida into a high-risk flood zone. But almost 80,000 (79,689) were in that zone prior to FEMA’s 2014 map update, then removed, and now 10 years later are back in a flood zone. “How did this happen and what’s the science behind it?” asked host Miller.

Carlos Adorisio, Floodplain Manager for the unincorporated area of Broward County, explained that FEMA flood maps are based on studies of two factors: rainfall and coastal storm surge. Maps from the 1980’s and 1990’s reflected most of the county was high-risk. “In 2014, FEMA updated the maps, but they only updated the portion for the rainfall risk and not for the storm surge. There was a lot of development and better modeling and a lot of areas were removed from the 100-year floodplain,” he explained. In its 2024 maps, FEMA updated only the coastal storm surge risk. “There’s been more development, updated storm data, and better computer modeling techniques and mapping,” since the last storm surge studies done in the 1980’s, said Adorisio, who is a Professional Engineer and a Certified Floodplain Manager.

“One of the components of storm surge is the sea level, which is higher than they accounted for in the 80’s and therefore the storm surge is higher in this study,” Adorisio explained. “Now the southern part of the county is lower than the middle and northern sections of the county...and it's to the point where FEMA believes that the higher storm surge elevation not only goes to I-95, it goes all the way to U.S. 27, which is close to the Everglades levee. That’s why you have those almost 90,000 parcels that are increasing in flood risk and now in the Special Flood Hazard Area,” said Adorisio, who earlier in his career worked for FEMA as a technical consultant for flood maps.

Ron Hurtibise, business reporter for the South Florida Sun Sentinel, first reported the scope of the 2024 flood map changes. The new high-risk flood zones are primarily located along... (For full Show Notes, visit https://lisamillerassociates.com/episode-51-floridas-expanding-flood-zones/)

A new working paper from the Congressional Budget Office estimates that for every dollar spent to elevate or buy-out a flooded home, $2.69 would be saved in future costs over the next 30 years. Of the 1.3 million projects the paper identifies, roughly 138,000 would see a greater savings of $6 dollars. Total savings would amount to $519 billion in future damage if governments and homeowners together would spend $193 billion today.

Former Florida Deputy Insurance Commissioner Lisa Miller sat down with one of the paper’s co-authors and the head of a national home floodproofing solutions company to discuss the government’s current efforts – and what’s lacking – to avoid costly future flood damage across the nation.

Show Notes

The Congressional Budget Office (CBO) is the research arm of the U.S. Congress, tasked with providing nonpartisan analysis for lawmakers to consider when making policy. Its May 2024 working paper, Flood Damage Avoided by Potential Spending on Property-Level Adaptations found:

• There are opportunities for adaptation for approximately 1.3 million projects nationwide (each adapting a single property of one to four units) where the expected avoided damage exceeds project costs primarily from elevating the home above flood stage or a buyout of the property for later destruction.
• The total cost of completing these projects would be $193 billion, preventing $519 billion of expected damage over 30 years.
• On average, each dollar spent on these projects would avoid $2.69 of expected damage.
• About 138,000 projects would result in expected avoided damage over six times the cost of the project.
• Outcomes vary based on area income and geography.

“We started looking into federal spending on adaptation to flood risk and we found that there's a big literature out there, but it can be really difficult to compare across studies, and apply one context to another,” explained paper co-author Evan Herrnstadt. “So we would need a scalable and flexible approach and found it was feasible for us to use the National Structure Inventory from the U.S. Army Corps of Engineers and flood modeling from the First Street Foundation and combine that with some other work to estimate avoided damage from property level interventions like buyouts and elevations,” said Herrnstadt, who is a CBO economist. The national framework that CBO developed used inland and coastal residential properties that contain 1 to 4 housing units.

While the CBO doesn’t make policy recommendations to Congress, Herrnstadt said in this report, it does characterize sets of projects and different allocation schemes to provides potential opportunities to avoid flood damage paid principally by federal, state, and local governments, together with homeowners. The paper notes that FEMA has multiple programs that fund property-level adaptation. From fiscal years 2008 to 2019, annual obligations for those programs totaled about $280 million, representing an average of 29% of the amount FEMA has obligated for hazard mitigation.

“Evan this is fantastic work,” said Tom Little, President & CEO of Floodproofing.com, an integrated company providing property risk analysis, wet and dry floodproofing solutions, and flood insurance. “This is the type of information that we need to get out there to continue to build awareness that we can actually invest money and get a strong return on that investment, by retrofitting the existing infrastructure that we have... (For full Show Notes, visit https://lisamillerassociates.com/episode-50-dollar-sale-on-flood-damage/)

A new report claims that Florida's property insurance market is full of “low quality insurers,” especially those Florida-based companies that write the bulk of the 7.5 million homeowners and condo insurance policies. It casts aspersions on Demotech, the rating agency that reviews their financial stability.

Former Florida Deputy Insurance Commissioner Lisa Miller sat down with Demotech President Joe Petrelli to get the other side of the story that the report didn't. She also learned that it wasn't low capital and surplus that led to seven company insolvencies, as the report claims, but instead targeted technology-enabled claim instigation.

Show Notes (For full Show Notes, visit https://lisamillerassociates.com/episode-49-when-insurers-exit/)

The report, When Insurers Exit: Climate Losses, Fragile Insurers, and Mortgage Markets was written by researchers at Columbia University, Harvard University, and the Federal Reserve Board and published online prior to being peer reviewed. The report’s abstract describes it as a study of how homeowners insurance markets respond to growing climate losses and how this impacts the home mortgage markets.

“Using Florida as a case study, we show that traditional insurers are exiting high risk areas, and new lower quality insurers are entering and filling the gap. These new insurers service the riskiest areas, are less diversified, hold less capital, and 20 percent of them become insolvent. We trace their growth to a lax insurance regulatory environment. Yet, despite their low quality, these insurers secure high financial stability ratings, not from traditional rating agencies, but from emerging rating agencies.”

The report specifically targets rating agency Demotech, which provides Financial Stability Ratings (FSR) for most of the 50 or so Florida-based property insurance companies, including six of the recent eight carriers to enter the market. The report claims Demotech’s ratings “are high enough to meet the minimum rating requirements” of Fannie Mae and Freddie Mac, which back many home mortgages, but that most of those insurance companies wouldn’t meet government requirements if rated by AM Best, suggesting the companies are financially weak.

“I think the thing to keep in mind is the report is based on what are called counterfactual AM Best ratings of Demotech-rated companies,” said Joe Petrelli, President of Demotech, who described counterfactual methods as those based on “what-if” scenarios. “So I think that, in and of itself, should have alerted people that this was not based on anything real or actual. It was based on counterfactual information. It's like rewinding the world, changing a few crucial details, and then hitting play to see what happens. It's essentially a simulation,” said Petrelli.

Petrelli is an actuary and a 55-year veteran of the insurance industry. He and wife Sharon co-founded Demotech in 1985 and today the agency reviews and rates 460 insurance companies across America. It is registered with the U.S. Securities and Exchange Commission as a nationally-recognized statistical rating organization for insurance companies. Florida regulators approached Demotech in 1995 to become the very first ratings company to review and rate independent, regional and specialty companies that filled the gap left by.... (For full Show Notes, visit https://lisamillerassociates.com/episode-49-when-insurers-exit/)