By Liam Niemeyer

Kentucky Lantern

Few in Eastern Kentucky have flood insurance or have ever been able to afford it. A federal agency’s new pricing system is putting it even further out of reach, jeopardizing eligibility for federal aid after future floods.

The cost of flood insurance is a major reason that Terry Thies is trying to sell her family home in Perry County.

It’s a place her grandfather bought and her father remodeled, where she played in the nearby creek to find pretty rocks. Her father never mentioned having flood insurance on the home because the home never really did flood much; the basement had most recently taken on water in 2011 but didn’t reach into her living space.

All of that changed when floodwaters cascaded into her community of Bulan in July 2022, reaching at least four feet up the walls of her home.

“No way. I’m not going to try and fix that house and live there,” Thies said in late July. “I don’t care if it was a ‘1,000-year flood.’ This could be the first day of the second 1,000 years. I just am not going to put myself back in that situation.”

Thies applied for federal aid after the floods that killed 45 Kentuckians and ruined thousands of homes across Eastern Kentucky. The Federal Emergency Management Agency denied her aid from that disaster, saying that the federal agency had given her funding after her basement flooded in 2011 and she didn’t have flood insurance this time around.

FEMA requires homeowners to buy flood insurance if they previously received help from the emergency management agency.

“That evidently happened,” Thies said, referencing the over $4,000 she received from FEMA in 2011. “I just don’t remember the part of that (where) you had to get flood insurance.”

More than a year after the deadly flood, she now faces a financial crunch with having to pay about $2,200 a year for flood insurance on her flooded property, something that’s a burden given that she was laid off last year from her family’s pharmacy business.

The region still is struggling with an affordable housing shortage exacerbated by the floods, and state and local leaders are slowly rebuilding new homes and establishing “higher ground” communities away from risk of flooding. Thies believes such communities are “a great thing.”

“We just had to quit living by the creeks,” Thies said.

She has a newly built home herself on the other side of the county thanks to a local housing nonprofit. But she can’t afford to keep the old homeplace, in part, because of paying that flood insurance premium.

A new pricing system

FEMA for decades has managed the National Flood Insurance Program (NFIP), created to help cover losses by providing flood insurance through a network of private companies and local insurance agents.

Weather disasters in recent decades have saddled the federal flood insurance program with billions of dollars in debt due, in large part, to fully paying out benefits after disasters such as Hurricanes Katrina in 2005 and Sandy in 2012. Raising premiums is one strategy for moving toward solvency in the program.

The NFIP has millions of policies in force nationwide but very few of them in Kentucky. A FEMA report last year found that a little over 1% of the more than 1 million residential structures throughout the state had flood insurance, and the rates of those with flood insurance are similarly low in Eastern Kentucky counties.

FEMA requires those who live in a high-risk flood area, known as a Special Flood Hazard Area, and who have a federal government-backed mortgage to have flood insurance. Those who also accepted aid from FEMA after floods — like thousands of households did in Eastern Kentucky after the 2022 floods — are also required to purchase flood insurance.

Calculating the cost of flood insurance premiums in the past relied on “relatively static measurements” that emphasized how elevated a property was on an existing flood insurance map. But that methodology didn’t fully account for the evolving science and data, leading to homes whose flood risks weren’t being accurately assessed through the price of premiums.

FEMA aims to change that with a new pricing system called “Risk Rating 2.0,” which was fully implemented in April, that the agency says will “equitably distribute premiums across all policyholders based on home value and a property’s flood risk, and set rates that are fairer.”

According to FEMA’s analysis, some policyholders in Kentucky counties will see the cost of their average annual flood insurance premium double, triple or spike even further under the new system.

Many of those dramatic increases in price are in poorer Eastern Kentucky counties, where people are still recovering from last year’s floods. In Perry County, where Thies’ family home was flooded and the median household income is about $40,000, premiums could increase by more than 130%, from an average of $1,403 in September 2022 to $3,363 under the new pricing system.

Martin County, where about 40% of residents live in poverty, will see one of the highest increases in annual premiums with an increase of over 290%, going from $1,143 in September 2022 to $4,509.

Carter County will see the highest increase in the state at about 317%, going from $834 in September 2022 to an average of $3,482.

Democratic state Sen. Robin Webb, who practices law in the Carter County seat of Grayson, said she understood why some river-bound communities could see changes in flood insurance criteria. But she doesn’t understand why a place like Carter County, though it has seen its share of floods, would have such a large spike in rates.

“We have pockets of flooding — there’s no question. A lot of people, everybody’s like, ‘Well, move.’ They don’t want to move,” Webb said. “They can’t afford to move.”

Existing flood insurance policyholders will see their flood insurance premiums incorporated into the new pricing system whenever the policies are renewed after April 2023. Yearly premium increases are also capped by law at 18% to 25% for people who had flood insurance policies before the new pricing system was implemented.

But completely new policyholders — very few people in Eastern Kentucky had flood insurance during last year’s floods — are facing the full brunt of newly calculated premiums after being incorporated into the new system in October 2022.

There are some discounts available to new policyholders, such as a discount for properties that are drawn into a flood area under a revised floodplain map.

Scott McReynolds is the executive director of the Housing Development Alliance, a Perry County nonprofit rebuilding housing in Eastern Kentucky. He said when his organization was helping after a different flooding disaster in 2021, they ran into several people who rejected FEMA aid because accepting it would have required them to purchase flood insurance — something they couldn’t afford.

The unaffordability of flood insurance even before the new pricing system, McReynolds said, leaves poorer Kentuckians with the risk of not getting disaster aid in the future, especially considering that typically the entire flood insurance premium has to be paid fully upfront.

“They either have to say, ‘No, I’m not going to take the FEMA help, or they’re going to take the FEMA help and risk not getting help next time,” McReynolds said.

He likens flood insurance to a “black box” because of what is still unknown about flood insurance requirements in the aftermath of the 2022 floods. For example, he and other housing advocates aren’t completely sure whether those who accept help from FEMA and then are added into the floodplain through revised floodplain maps will have to get flood insurance.

Those on the frontlines of rebuilding housing, including McReynolds, say they’re too busy helping with Kentuckians’ immediate needs to be able to think hard about something like flood insurance.

“All sorts of people are taking the money,” he said. “Some of them may be taking it thinking that, ‘Hey, I’ll get flood insurance,’ and they just don’t have any idea what it’s going to cost.”

Bridging the affordability gap

Those who have studied flood insurance at a national level say answers to the affordability question likely need to come from Congress.

Chad Berginnis, the executive director for the Association of State Floodplain Managers, said there absolutely needs to be a mechanism to help some communities afford insurance if FEMA is going to reassess and increase insurance rates to make up for debt in the program.

“What’s really frustrating to me is that we have again Congress who, on one hand, wants to see a more solvent program, and on the other doesn’t want to solve necessarily these real situations for folks,” Berginnis said.

Berginnis contrasted the relative lack of funding for the flood insurance program to crop insurance, which is subsidized with billions of dollars by the federal government.

“They are using a different lens to view this insurance program, and it is deeply unfortunate,” he said.

FEMA did not answer a list of questions from the Lantern about the affordability of flood insurance, saying the agency’s immediate priority was responding to the aftermath of wildfires in Hawaii.

Some Kentucky politicians have taken action to address spiking insurance rates under the new pricing system: Republican Attorney General Daniel Cameron in June joined nine other attorneys general in challenging the new system in a lawsuit, calling it an “egregious and unlawful” price hike.

Kentucky Republican Rep. James Comer, chair of the U.S. House Oversight Committee, also led a bipartisan effort to send a letter to FEMA’s administrator in May asking for more information about how FEMA’s new system could impact premiums. Other signees on that letter included Louisiana lawmakers who have also expressed frustration over FEMA’s new pricing system and the spikes in premiums seen in that state, too.

Few Kentucky communities take advantage of discounts

Sam Brody, a professor at Texas A&M University at Galveston who testified before Congress about flood insurance, said there are ways communities can help lower flood insurance costs through programs such as the Community Rating System, but it can be hit or miss if communities are taking part in such a program.

The Community Rating System is a FEMA program that discounts flood insurance in communities where local flood management practices exceed the minimum requirements, such as by retrofitting flood-prone buildings or hosting activities that build awareness of flood insurance.

Communities can receive discounts ranging from 5% to 45% on premiums, but few local governments in Kentucky, about 40 total including 11 counties, are taking part.

“I think that’s a really important program that is not well known,” Brody said. “How do we offset rates? How do we make our communities more resilient over the long term and do it in a balanced way — not just dig walls — but do other stuff like, communicate, educate?”

In the meantime, Brody said, flood insurance affordability will still be a looming problem for flood-prone areas throughout the country, something that’s only worsened by the lack of flood-resilient community design and climate change.

“I know people who pay $4,000 for insurance a year, and that’s backbreaking for a lot of people,” Brody said. “Even areas that are like Eastern Kentucky — it’s going up, and they’ll continue to go up. And what does that mean, for, you know, the community as a whole?”