The flood insurance crisis facing Americans
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Houses have historically been a key driver of middle-class wealth creation — but when some or all of your house gets destroyed in a flood, it feels less like an asset and more like a liability. That's a scenario of concern to millions of Americans this hurricane season.
Why it matters: Only a tiny proportion of Americans have flood insurance — and yet their insurance bills are already soaring.
- There's no easy or obvious way to protect America's homeowners from flood damage, even as climate change makes us ever more susceptible to it. Certainly, private insurers don't seem to be well-placed to be able to do it.
The big picture: Hurricane insurance comes in two forms, wind and flood, which need to be insured separately.
- There is effectively no private market in flood insurance. It is mostly provided by FEMA, whose flood-insurance program was more than $20 billion in debt even before hurricanes Helene and Milton this month, and even after Congress canceled $16 billion of its liabilities in 2017.
- FEMA also offers concessionary loans to uninsured homeowners who need to rebuild after flood damage. Those homeowners are numerous: just 0.7% of homes in the North Carolina county that includes washed-out Asheville, for instance, had flood insurance.
Driving the news: Hurricane Helene caused as much as $250 billion of damage in total and about $47 billion of damage to homeowners alone — but was not particularly damaging to insurance companies, which collectively saw about $11 billion in damages, per Moody's.
- Hurricane Milton is likely to be much worse for insurers. The stock market is expecting about $75 billion of insured damages, per BMO analyst Michael Zaremski.
- Damages near that level risk ruining Florida's Hurricane Catastrophe Fund (FHCF) — which in turn could leave multiple insurers insolvent, since FHCF is effectively a reinsurer for hurricane risk.
Follow the money: The average property insurance payment in Jacksonville, Florida, has risen by 86% since 2019, per ICE Mortgage Monitor — outpacing the already steep 52% rise nationwide. (Commercial insurance rates have risen faster still.)
- Florida condo prices are already falling as a result, even if home prices more broadly aren't. Uninsured houses, either way, are a terrible investment.
Zoom out: Regulators can't force private insurers to offer coverage — the companies can just leave the state entirely, as Farmers did last year in Florida. And if flood insurance is a guaranteed money-loser for FEMA, it will be for private insurers too.
- The upshot, says TD Cowen's Jaret Seiberg, is that "disaster loans are likely to remain the primary federal response" to hurricane damage.
The bottom line: Disaster loans, like all other loans, are a form of debt. Which means that owning a home, far from making folks wealthier, often just ends up increasing their liabilities.
Bonus chart: The insurance burden
Insurance costs — not even including flood insurance, which most Americans don't have — have been rising steadily as a percentage of total mortgage payments for more than five years.
- Don't expect that trend to change any time soon.
