While FEMA pays out hundreds of millions of dollars to its flood insurance policyholders for property damage each year, a large number of properties that have made claims in the past decade aren't compliant with the agency's elevation requirements.
ValuePenguin analyzed claims data provided by FEMA and found that flooding has been responsible for more than $1.4 billion in damage to noncompliant properties since 2010. In certain areas where the risk of flood is greatest, FEMA requires the lowest floors of homes to be built at or above the area's expected flood water height.
But in the past 10 years, the properties that have generated claims in these high-risk flood zones were built an average of 3.7 feet below what's called the base flood elevation point — the level where regulators anticipate rising water will settle.
While the amount of money paid on account of these properties is high, the damage from the decade's most powerful storms hints at starker financial ramifications, which could arise from a combination of rising sea levels and the continued presence of noncompliant homes across the country.
In the last decade, there were $1.4 billion in flood insurance losses from noncompliant properties built too close to the expected height of local flood zones, with only 800 claims going toward compliance efforts.
The average claim was $51,000 over 10 years, but the average climbed as high as $66,000 in 2017, mostly due to damage resulting from Hurricane Harvey.
Together, Ocean and Monmouth counties in New Jersey and Nassau County in New York made up 27% of the value of all noncompliant losses since 2010.
Superstorm Sandy and Hurricane Harvey were responsible for no less than $750 million in damage to noncompliant homes in the last decade.
Compliance remains a problem: More than 74,000 policies are set to expire in the second half of 2020 for properties that don't meet the agency's elevation requirements.
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In nine of the last 10 years, flood insurance losses were valued in the tens of millions of dollars, with a typical payout to noncompliant properties of $51,000.
In 2014, the value of property damage claimed by noncompliant homes was only $8.2 million. In most cases from 2010 to 2019, however, losses climbed into at least the tens of millions of dollars. And from 2016 to 2018, more than $1.2 billion was paid to homes built below the expected height of rising flood water.
No year was more destructive than 2012, which alone accounted for more than 40% of the flood insurance claims paid out to noncompliant properties in the last decade. In 2012, when Superstorm Sandy razed the Northeast coastline, about $580 million in damage was paid to homes constructed in violation of FEMA's elevation guidelines.
The average amount paid to noncompliant properties in 2012 was $58,000, but this figure represents an increase from the more typical $51,000 per claim seen over the course of the last decade. This number includes the cost to repair damaged buildings, replace contents and pay for structural adjustments to heavily damaged homes.
Policyholders may choose to elevate, demolish, relocate or floodproof their homes after a loss. They may also claim up to $30,000 for repairs that make the home compliant. However, we found that fewer than 800 of 35,000 policies from noncompliant properties made claims for these types of adjustments after a loss in the last 10 years.
This type of claim is so infrequent because only certain homes are eligible. FEMA stipulates that the value of the damage to your property must equal at least 50% of the home's pre-flood market value before you can make this type of claim. Additionally, the expenses from structural adjustments must fit in an NFIP policy's $250,000 maximum total coverage, along with property and dwelling-related claims.
That means homeowners are confronted with an easy choice, if they can make a compliance claim at all: Either set aside $30,000 from one's $250,000 coverage to bring one's home into compliance, or save one's home and property and continue purchasing coverage against future, perhaps uncommon, floods.
There were hundreds of millions of dollars claimed in New Jersey and New York as the result of flood damage to noncompliant homes — states that don't typically have high insurance costs.
While nearly every state has noncompliant properties that file flood insurance claims to FEMA, many of the states with the most cases also tend to experience a higher frequency of natural disasters. In these states with long coastlines, like Florida, North Carolina and Louisiana, it's not uncommon for strong winds and tropical storms to cause damage — and for the cost of homeowners insurance to be more expensive.
Specifically, we found that properties in Monroe County, Florida; Craven County, North Carolina; and East Baton Rouge Parish, Louisiana, made more than $100 million in claims despite not being compliant with the guidelines issued by FEMA. The most claims, however, came from counties in New Jersey and New York — which aren't typically subjected to strong hurricanes.
Ocean and Monmouth counties in New Jersey accounted for more than 5,000 claims collectively worth at least $350 million in the last decade, on their own. In Nassau County, New York, which placed fourth among all the counties we surveyed for the total value of its noncompliant claims, property losses totaled $39 million. Together, these three counties made up 27% of the value of all noncompliant losses since 2010.
It's no coincidence that seven of the top 10 most-expensive counties for noncompliant losses were in New Jersey and New York in the last decade. Nor that claims in Harris County, Texas, accounted for more than $230 million. The vast majority of these losses stemmed directly from the damage inflicted by Superstorm Sandy in 2012 and Hurricane Harvey in 2017.
Just two storms were responsible for $750 million in damage to noncompliant homes in the last decade, and rising sea levels could put tens of thousands more properties in danger.
After Superstorm Sandy made landfall in late October 2012, noncompliant properties across New Jersey and New York accumulated upward of $520 million in damage. This excludes damage in Maryland, Delaware and Connecticut, which was also significant. Similarly, damage to Houston, Corpus Christi and other smaller cities on Texas' Gulf Coast racked up no less than $240 million in claims after Hurricane Harvey hit in 2017.
Recent conservative estimates published in the Proceedings of the National Academy of Sciences in the U.S. show an expected median sea level rise of 26 centimeters, or about 10 inches, by the year 2100, with a gradual increase of a few millimeters per year.
The damage to New Jersey, New York and Houston underscores the consequences that the combination of homes built under FEMA's recommended flood projections, a strong, out-of-the-ordinary storm and rising sea levels can produce — especially to homes built just at their local base flood elevation point. What's even more worrying, however, is that there are still many policies covering noncompliant homes.
At the end of 2019, the NFIP showed there were only 5.1 million policies in force. Of these policies, our data shows more than 74,000 will be in-force during the second half of 2020 for properties that don't meet the agency's elevation requirements. In fact, these properties are built an average of 4 feet under their local base flood elevation requirements.
Additionally, residents in Ocean County, New Jersey — the county that bore the brunt of Superstorm Sandy and recorded the most losses involving noncompliant homes during the last decade — have purchased more than 46,000 policies attached to noncompliant homes in the last five years.
We consulted FEMA's historical database of flood insurance policies and claims to find the information for this study. Using this data, we identified claims made by homes built under their local base flood elevation levels since 2010, the locations of these claims and the value of the claim.