Column: Consider alternatives as cost of flood insurance increases

In this age of extreme weather and worsening natural disasters, it is crucial that we refresh and modernize our approach to disaster mitigation and recovery. A good place to start would be floods, which cost our nation approximately $17 billion in damage each year.

Hawaii’s people who live in a “mandatory” flood zone as defined by FEMA are required by lenders to obtain flood insurance before purchasing their home. Residents in such zones must acquire flood insurance as a condition of the home purchase, and they have historically purchased insurance from the federal government through the National Flood Insurance Program (NFIP). Pending regulatory changes would allow private insurers to better compete with government insurance, but for the moment the NFIP enjoys an effective monopoly in mandatory zones.

However, it’s important to understand that damaging floods occur outside these “mandatory” zones every year. Approximately 20% of NFIP claims, for example, come from flood events in FEMA’s “moderate” and “low” risk zones, where residents are not required to purchase flood insurance. According to the NFIP’s own flood calculator, just one inch of standing water due to flooding can cause $25,000 dollars of damage to a home.

Consumers deserve choice, especially considering government- mandated changes to NFIP that will dramatically increase the cost of government flood insurance to cover program losses. How big a change? According to analysis by Redfin, 81% of the NFIP flood policyholders are seeing an increase in their premium as of April 1 of this year. In Hawaii, 81% of NFIP policyholders are now paying more for their government insurance. The NFIP price hike impacts all types of communities but is most pronounced in majority-Hispanic neighborhoods, where 84% of residents have seen their premiums increase.

The combination of under-insurance and price hikes raises troubling questions about our collective resilience to flood damage.

According to the First Street Foundation, our country’s annual losses from flood — currently at $17 billion — could grow to $32 billion by the year 2051. Of course, this figure does not include the cumulative cost of tornadoes, hurricanes and other wind events, fires, and earthquakes. Over the past five years, the average annual cost for all natural disasters in the United States was $51 billion. If policyholders facing premium hikes discontinue NFIP coverage, the costs of uninsured losses will be borne by American communities and threaten the ability of government entities at all levels to finance needed repairs and recovery efforts.

In short, we need to stop depending solely on government to restore our communities after disaster strikes. We envision a chain of community resilience where government, NGOs, community leaders and insurers work seamlessly to maximize available resources in support of Americans in need. A property that lacks adequate protection against flood or other events creates costs that are shifted to other links in the chain of resilience — government aid, or NGOs and philanthropies. In an era of tightening budgets and worsening weather, this is not sustainable.

The urgent order of business is to ensure that Hawaii residents are aware of their risk from flood damage and have multiple affordable options to protect their families. Private flood insurance is now an even more attractive alternative for island families and businesses, especially in an age of higher prices for everything from gasoline to housing.

It’s crucial that Hawaii residents educate themselves about their options and potential alternatives to the NFIP. Above all, it’s crucial that vulnerable homes and businesses obtain coverage so that costs of recovery are not transferred to the federal government or to NGOs. The time to update our approach to disaster response is here, and we must seize the moment.

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Mac Armstrong is CEO of Palomar Holdings, a specialty insurer active in Hawaii since 2014.