Last month, climate risk research organization First Street released a report highlighting critical issues surrounding FEMA and the National Flood Insurance Program.
The report warning nearly 13 million properties at high risk of flooding are either underinsured or uninsured.
About 10 million of these are outside the officially designated high risk flood zones.
It also suggests that cuts or elimination of FEMA could undermine national. resilience to flooding due to disrupted disaster response, flood mapping, and mitigation programs.
Well joining me this morning to break all of this down is Jeff Gitterman, CEO of Gitterman Asset Management.
Jeff, good morning.
Thank you so much for joining me.
Good morning.
How are you?
Well, since you last joined us, a lot has happened when it comes to extreme weather, and here we are as hurricane season kicks off.
So walk us through this report.
So the issue that we're having is that the whole kind of pie of flood risk sits on FEMA's back.
I like to think of it almost like a Changa game.
Like we've been having all these issues with extreme flooding, and that keeps pulling one of these Changa blocks out of the Changa, but the main block that's holding everything up has been FEMA because it really underinsures flood, not underinsures, it insures flood risks across the country or it backstops flood risks across the country and then.
Now as of May and June we've seen the president say that they're going to pull back on FEMA post the 25 hurricane season.
There's already been some dismantling of operational structures around FEMA, so the support people that show up after a disaster, a lot of those people have been let go already, so it starts to add risk that before was being passed off.
And where does that risk fall?
It falls on the banks that are holding the mortgages.
Of these properties that are concerned about the risk, homeowners insurance, will it get reissued if they know there's no backstop on flood insurance in flood prone areas, municipalities which have relied on FEMA to come in post disaster and bring in a lot of money and insured support to build out those properties.
So it really dramatically increases foreclosure risk across those 13 million properties at least that you were discussing.
Yeah, and every week it seems as though there's a new flood risk and also event that we hear about not just in the US but across the world as well.
So when we're talking about here in the US and FEMA, what is realistic moving forward and what do you think needs to really happen here?
What's realistic is up to the administration.
So unfortunately what's realistic is FEMA should stay in place and it should be maybe operationally cleaned up a little bit and reviewed more and looked at, but the idea of pulling it out is really pulling the rug out from under the entire homeowners.
Insurance and real estate market and once you have mortgage risk increase, then you have municipal bond increase, then you have real estate valuation increase and what people don't get is that a lot of these areas are very low income areas that are exposed to this river flooding risk, especially.
And if those people are displaced, the entire revenue base of the town who's doing the jobs, who's working in the hospitals, all of that gets impacted.
So you think back to 2008 and kind of the financial crisis and what triggered that was real estate market.
This is a a very similar trigger, but it's not a temporary.
Fire.
Like all of a sudden in 2008, if you pumped enough money into it, they were able to resolve the issue and clean up banking a little bit.
Climate change unfortunately is not going away and regardless of what people say about it, the number of increased events may not be going up.
But the destruction of each event is going up dramatically.
We're having way more billion dollar plus flood risk events post 2016 than we ever had before.
That seems to keep increasing Texas being the worst that we've seen this year, where over 100 people lost their lives.
It is a dramatic problem, but FEMA is that linchpin or that safety pin that's kind of holding in the grenade.
You pull FEMA out, that grenade blows up.
The capital markets risk could be extensive.
And Jeff, I do want to ask you about the role that the insurance industry plays because homeowners across the country, they may have different types of homeowners insurance, but when it comes to the industry as well as homeowners, what do you think is important to know at this point?
So they need a radical redo.
They need to be able to buy state increase premiums where the risk is the highest.
Right now they can't do that.
The state limits all increases.
On insurance risk, which is why flood risk is passed on to the national program and FEMA and not being dealt with by the state and the state homeowners insurance, but it needs to be passed on and there needs to be the allowance that if you retrofit or put resilience factors into your home that you get discounts on your insurance.
So the insurance companies need to be able to float the rates more to be reflective of the current risk.
FEMA maps.
To be withdrawn, not to be taken away.
Texas showed us that you can't build homes where river floods, not even homes.
You can't certainly have day camps where river flooding has been extensive in the past.
So a lot of focus on the data allowance for resilience to be priced into insurance per homeowner, and the state has to allow for more increases in overall insurance hikes unfortunately.
And Jeff, finally, before I let you go.
We have less than 60 seconds here, but tell me the role that private insurers plays.
Private insurance insures about 13% of flood risk, but about 5% of that flood risk is uninsurable without the FEMA backstop.
That's a lot of homes.
That's a lot of risk coming back into the marketplace if FEMA gets pulled.
OK, Jeff, always great having you here.
Thank you so much for coming back on the show, and we look forward to continuing the conversation.
Thank you.
