How Hudson River homeowners view flood insurance

The findings

Flood insurance purchase tracks with federal requirements. The NFIP requires flood insurance for mortgaged properties in SFHAs. Sixty-nine percent of surveyed mortgage-holders within SFHAs held flood insurance—a higher number than other studies have found, but low considering the legal requirement to insure (Fig. 1a). Of Special Flood Hazard Area homeowners without mortgages, 23% held flood insurance policies. Outside of SFHAs, few reported carrying flood insurance.

Requirements lead more lower-income households to insure. In line with other studies, we find that among those not required to insure, income plays a major role in flood insurance decisions. In each group not required to insure, households that purchased flood insurance had substantially higher median incomes than those who did not (Fig. 1b). Among Special Flood Hazard Area mortgage-holders, median incomes do not differ appreciably between those with and without insurance.

Flood insurance purchase does not evenly reflect flood risk perception. Among insured homeowners within SFHAs, 60% agreed that their high flood risk makes flood insurance necessary (Fig. 2a). However, over one-fourth disagreed, suggesting that the mandatory purchase requirement compels some homeowners to insure despite perceiving low flood risk. Homeowners outside SFHAs were less likely than those within to see their levels of flood risk as high enough to justify insuring. Only about half (52%) of insured mortgage holders outside Special Flood Hazard Areas agreed they needed insurance due to high risk. Meanwhile, despite residing in designated high-risk areas, almost half of uninsured homeowners within SFHAs responded that their flood risk was low enough to justify forgoing insurance. Of uninsured homeowners outside Special Flood Hazard Areas, 70% agreed that their risk is low (Fig. 2b). Still, 35% of uninsured SFHA homeowners feel their risk is high, choosing not to insure despite concerns about flooding.

Most homeowners lack confidence that flood insurance will meet their needs. Among insured homeowners, a majority agreed that they could not cover the costs of flood damage without insurance (Fig. 2c). At the same time, just 23% of insured homeowners believed that insurance payouts would meet damage costs; mortgage holders within SFHAs were least likely to agree (Fig. 2e). Among uninsured homeowners, 19% believed they could “pay for costs of flooding without money from insurance,” while 54% felt that they could not (Fig. 2d). Twenty-nine percent of uninsured homeowners agreed that flood insurance would not pay out enough to cover damage costs, with 13% disagreeing, while the majority neither agreed nor disagreed (Fig. 2f). Many homeowners express uncertainty about the financial burdens of flood damage and the benefits of flood insurance.

Still, flood insurance provides reassurance. Despite uncertainty about flood insurance payoffs, nearly three out of five insured homeowners—58%—somewhat or strongly agreed that flood insurance gives them peace of mind (Fig. 2g). Even if few are confident that flood insurance will cover all their costs, for many having flood insurance is nonetheless reassuring given the prospects that flood costs could outstrip available resources.

Flood insurance costs are a major concern. Among uninsured homeowners living in Special Flood Hazard Areas, 79% agreed that flood insurance is too expensive (Fig. 2h). This is significant given that uninsured mortgage-holders within SFHAs might be skirting the mandatory purchase requirement, while any homeowners in SFHAs who go uninsured may be taking substantial risks. Outside Special Flood Hazard Areas, 36% of homeowners agreed, with most others neither agreeing nor disagreeing. These respondents may not have a clear idea of how much flood insurance could cost them. 
 

Implications

Hudson Valley homeowners have divided views of flood insurance. Most people in high-risk areas recognize that their flood risk justifies insuring, while many others are unsure of whether flood insurance payouts would meet their needs. The requirement for Special Flood Hazard Area homeowners to purchase flood insurance reduces inequities in who is financially protected by insurance. However, it does so by imposing substantial costs on homeowners who are required to insure. Among uninsured homeowners, cost is clearly a major concern. Efforts to increase flood insurance affordability for low-income residents are long overdue. It is encouraging that one in five mortgage-free homeowners in high-risk areas reported insuring even though they are not required to do so. However, more work is needed to understand what circumstances help and hinder residents to insure. With a greater understanding of the financial and flood risk considerations that influence flood insurance decisions, policymakers can more closely examine measures to address financial concerns, enhance transparency, increase homeowners’ understanding of the NFIP, and build on existing initiatives to engage with communities.