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How Rising Seas Drowned the Flood Insurance Program

By Gilbert M. Gaul, Yale Environment 360

Long Beach Island is the largest and richest barrier island in New Jersey, an oasis of sprawling oceanfront retreats and second homes located midway down the state’s heavily developed coast, a two-hour drive from the metropolitan centers of New York City and Philadelphia. On a clear day, visitors in the southern end can see the shiny facades of the Atlantic City casinos rising like obelisks across Great Bay. In the north, historic Barnegat Lighthouse towers over an unruly inlet steadied by boulders stretching into the Atlantic Ocean. In many places, the long, slender island is barely a few feet above sea level. And like most of New Jersey’s coast, it has been eroding for decades, leaving it vulnerable to flooding and rising seas. 

Airmen and Soldiers from the New Jersey National Guard search house to house for victims of Hurricane Sandy on Long Beach Island, N.J. on Nov 1, 2012.
Credit: New Jersey National Guard/flickr

Recently, the U.S. Army Corps of Engineers pumped more than ten million cubic yards of sand from offshore dredges to widen Long Beach Island’s beaches and dunes – part of a Sisyphean-like effort to protect the island’s $15 billion of high-calorie real estate. But there is a problem. The sand keeps washing away. A series of storms over the last two years gouged the neatly groomed beaches, costing tens of millions in additional repairs. When all is said and done, the project will cost more than half a billion dollars, most of the money paid by U.S. taxpayers. 

Like other barrier islands up and down the Atlantic and Gulf coasts, Long Beach Island is drowning in slow motion. Over the last century, researchers estimate that the ocean and bays that flank the island have risen by about a foot. That doesn’t sound like much, but the added water has made a huge difference in life on the island. Barnegat Bay now routinely washes over the bulkheads and floods the streets. Occasionally, school buses have to wait for the water to recede to pick up or drop off children. Even more worrisome, the rising water makes it easier for storm surge and waves to do more damage in violent storms such as Hurricane Sandy, which wrecked Long Beach Island and the back-bay communities in Ocean County in October of 2012. 

Sea level rise played an important role in Sandy, with historic flooding from Delaware to the Battery in lower Manhattan. Upward of 100,000 people experienced flooding who otherwise would have been dry, researchers estimate. Most late season hurricanes veer out to sea by the time they reach the mid-Atlantic. Sandy took a hard left-hand turn, crashing ashore near Atlantic City and pushing a five-foot plume  up the bays, into places water had never reached before.

One of many houses in Staten Island, N.Y. destroyed by Hurricane Sandy.
Credit: DVDSHUB/flickr

Dave Rinear’s small bungalow on Cedar Bonnet Island – a smudge mark of sand and sedge located just behind Long Beach Island – had the misfortune of facing a vast, open fetch of Barnegat Bay. Surges from Sandy lifted a 24-foot speedboat named Plan B from its winter mooring and launched it into Rinear’s cedar shake cottage, blowing out a wall and washing away most of the contents, including 50 years worth of prized fishing journals. “Talk about laser-guided misfortune,” the 72-year-old retired professor moaned. “That thing came up the bay like a laser-guided missile with my name on it.”   

Rinear’s bungalow was totaled. But he filed a claim with the National Flood Insurance Program (NFIP) and received enough to help him rebuild a larger new house on the same footprint. In all, the federal flood program paid out $8 billion in Sandy-related claims. More than $2 billion went to property owners in Ocean County, including $200 million on Long Beach Island. That was nearly twentyfold what island property owners had collected in the prior 35 years of the program. 

Today, the NFIP is effectively bankrupt. It owes the U.S. Treasury nearly $25 billion – money it borrowed from federal taxpayers to cover its obligations in Sandy, Katrina (2005), and Hurricane Ike (2008). No one expects that money to be repaid. Some coastal state lawmakers are even calling for Congress to write off the massive debt, contending it is the only way the troubled insurance program, which is up for reauthorization this year, can regain its financial footing. 

Wiping away the debt will help. But it is only a matter of time until the next big storm drains the coffers again. Even relatively weak hurricanes cause hundreds of millions in damage, while monster storms like Katrina and Sandy cause billions. Complicating matters, the NFIP has improbably subsidized thousands of risky properties along the coast – low-lying houses that flood over and over – by charging them below-market premiums to entice them to join the program.   

Now the federal flood program faces no less than an existential threat. As seas rise, coastal floodplains are expected to expand, exposing more property to routine flooding, surge, and waves. By some estimates, hundreds of thousands of U.S. houses could be underwater by century’s end and a trillion dollars worth of property at risk. Much of Long Beach Island’s heavily insured housing could be covered by several feet of water twice a day at high tide, rendering it inaccessible except by boat. Meanwhile, the average losses for each flood policy could increase by half, according to a 2013 government study, leading to sharp increases in premiums that price out all but the wealthiest property owners. 

Elevating homes above predicted flood levels and adopting other mitigation strategies will help in the short run, says Robert E. Kopp, an expert on climate change and sea level rise at Rutgers University. But not enough coastal communities are taking the long-term threat seriously. “So what we have is a lot of changes on the margins,” Kopp said. 

Rising Seas and the Jersey Coast

The NFIP also lacks a reserve fund to help cover losses from catastrophic storms like Sandy. Instead of charging a little more and setting aside money, the way private insurers do in other lines of business, the federal flood program relies on the U.S. Treasury – taxpayers – as its financial backstop, or reinsurer. In 2013, the NFIP finally added a 15 percent assessment to its flood policies, and gradually built up about $1 billion in reserves. But an epochal 2016 flood in Louisiana used up that money. 

Many Americans probably associate the NFIP with floods along the Mississippi River and other inland bodies of water. The program does cover those floods. And with climate change spawning monsoonal deluges in Texas, Louisiana, and other places, the risks are significant. 

But most of the losses plaguing the program are now at the densely developed U.S. coasts. NFIP data show that hurricanes and nor’easters account for three-quarters of all the program’s losses – $38 billion of the $52 billion paid out since 1978. Just six huge storms, including Sandy and Katrina, are responsible for $35 billion of the coastal claims. All occurred in the last 15 years, highlighting the growing risks to coastal development. 

Aerial photo of damaged homes along New Jersey shore after Hurricane Sandy.
Credit: Greg Thompson/USFWS/flickr

Over time, the government flood program has become the insurer of last resort in vulnerable coastal floodplains for second homes, oceanfront mansions, investment properties, and more modest homes stacked along the nation’s back bays and sounds. With so much property in the line of fire, it is unsurprising that the price tag for disaster aid and flood losses keeps increasing. And with rising seas and bigger, more violent storms, it will likely get worse. In 2013, researchers estimated that a major hurricane slamming into Tampa could cause upward of $175 billion in damage. 

It wasn’t supposed to be like this. The government got into the flood insurance business reluctantly, and only after private insurers fled the market because it was too risky and unpredictable. When Congress finally passed the NFIP in 1968, it was intended in part to steer development away from vulnerable floodplains. However, many coastal communities ignored the restrictions and filled the nation’s barrier islands and back bays with property. The value of land and property on the New Jersey coast soared from less than $1 billion in 1960 to over $170 billion today. Most of that property is located in what NFIP officials call Special Flood Hazard Areas, low-lying places likely to flood and suffer extreme damage in catastrophic storms. 

Today, at least $3 trillion worth of property lines the Atlantic and Gulf coasts. Much of it is insured by the NFIP, including approximately one million second homes and investment properties. Rising sea levels will make it easier for future storms and waves to damage those houses by elevating the angle of attack. “Think of it this way,” says Kopp, “if the flood level is five feet and you add a foot of sea level, then the new flood level is six feet. That elevates the platform (for surge and waves). It’s that simple.” 

Of course, no one knows exactly how high the seas will rise by the end of the century. That will depend on the rate of greenhouse gas emissions, melting ice sheets in Greenland and Antarctica, warming ocean temperatures (water expands when temperatures rise), and local geological conditions. Some low-lying, porous areas like Miami and Norfolk appear to be more vulnerable than others. 

A 2016 Rutgers study found that seas near New Jersey could rise between 1 and 1.8 feet by the middle of this century under a scenario of low carbon emissions. But under a high emissions scenario, seas could swell as high as 4.5 feet by 2100. Recently, a National Oceanic and Atmospheric Administration study estimated mean global sea levels could rise as high as 8 feet by the end of the century. 

Several more feet of water would be devastating, swallowing vast swaths of real estate, according to several studies. A June 2014 report called Risky Business, prepared by a group co-chaired by former New York City Mayor Michael Bloomberg, estimated that between $66 billion and $160 billion worth of U.S. real estate could be below sea level by 2050 – and up to half-a-trillion by the end of this century.

Another study by researchers at the real estate firm Zillow found that nearly two million U.S.homes worth almost $900 billion could be underwater by 2100. The researchers weren’t referring to a situation where the market value of a home dips below the value of the mortgage; they literally meant underwater, swamped by rising sea levels. 

Damage from Hurricane Sandy in Howard Beach, N.Y.
Credit: Pamela Andrade/flickr

Zillow researchers looked at coastal states where sea levels would rise by six feet by 2100. In Florida, the most vulnerable and heavily developed, they found nearly 1 million homes – one of every eight in the state – would be underwater. The next most vulnerable state was New Jersey, where 190,429 houses would be inundated.

The researchers agreed to analyze their data for me by county and town. Unsurprisingly, 80 percent of the houses expected to be underwater in New Jersey were located in the state’s four coastal counties – Atlantic, Cape May, Monmouth, and Ocean. That also happens to be where most of the second homes are located and where the NFIP is the insurer of last resort.

Nearly 60,000 of the homes expected to be underwater are in Ocean County along the barrier islands and back bays. Almost 5,000 are on Long Beach Island, which means one quarter of all the properties there would be inundated, according to Zillow.

One of the Long Beach Island properties likely to be swamped is Joeys’ Pizza & Pasta, a popular restaurant on Long Beach Boulevard in the middle of the island. Joeys’ is the bellwether for flooding on the island. “If someone sneezes, it floods there,” jokes Joe Mancini, a local mayor and prominent developer. There is almost no elevation and when it rains water runs downhill from the crown of the boulevard to the low-lying, one-story concrete restaurant. It doesn’t help that Joeys’ is only 100 yards or so from Barnegat Bay, which now floods routinely in nor’easters and thunderstorms.

Joe Rulli, the owner of Joeys’, told me he first noticed a change in the early 1990s. “The bay seemed higher and we started getting water. We had a couple of big storms that shut everything down in `91 [the Halloween nor’easter or so-called Perfect Storm] and `92 [a nasty December nor’easter]. Then afterward we just started to get more and more.”

Without federal flood insurance, Rulli said he would be out of business. “I’ve probably filed seven or maybe as many as ten claims over the years. In the old days, if I had a loss of say $13,000, I’d file a claim. Now I don’t even bother unless I get three feet (of water in the restaurant). I just go in there with a broom.”

Rulli has done everything he can to flood-proof his pizza shop, elevating the ovens and running all of the electrical wiring through the ceiling. After Sandy pushed six feet of brackish water and mud inside, he considered tearing it down and building a new shop high above the flood stage. But with real estate so expensive, he couldn’t afford to move to higher ground. 

At least Rulli is able to maintain his sense of humor. A number of years back he added a message to the large sign outside his restaurant: Occasional Waterfront Dining. “It was my way of making a joke,” he said. “Everyone who knows this place got it right away.”

Reprinted with permission from Yale Environment 360.