Flood insurance demand in SC recedes as development pours in (2024)

A financial lesson of storms past has gone largely unheeded in the Palmetto State.

It appears to have come down to a matter of dollars and cents.

Property owners in South Carolina aren't lining up to buy the specialty insurance they'd need to file a claim and rebuild after a bout of water damage, the kind that Tropical Storm Debby already has inflicted last week and may still inflict as creeks, streams and rivers rise and crest.

The upshot is some households could get soaked in more ways than one.

The latest government figures show the number of subsidized federal flood policies sold across the state is lower than it's been in recent memory, even as residential and commercial development has exploded up and down the coast.

A succession of destructive downpours since 2015 hasn't been enough to keep the needle from slipping.

As of July 31, the number of South Carolina policies in the national coverage pool of about 4.6 million fell by 2,600, or 1.4 percent, from the same day a year ago, according to a monthly spreadsheet from the Federal Emergency Management Agency, which oversees the National Flood Insurance Program.

The latest total is 199,324, equal to about 8 percent of all residential properties around the state. The figure, which exceeded 204,000 in 2018, slipped below the 200,000 level last month.

The government has been the primary underwriter of flood insurance since the late 1960s, when borrowers of federally insured mortgages with homes in high-risk areas were required to buy a policy to cover flood damage. More recently, private carriers have been getting back into the market.

Premiums can range from hundreds to thousands of dollars annually, with a maximum $250,000 payout from the government, plus another $100,000 for contents. The buy-in restrictions include a 30-day waiting period, making it too late for Debby's victims.

And not everyone is required to get coverage, leaving many to go with the low-cost option that could become a big-ticket expense in the event of a flood. They’ll be forced to pay out of pocket or seek government disaster assistance — or both — if they have to repair water damage.

Fewer homeowners are buying flood protection for several reasons — and the trend ripples beyond South Carolina. One theory is that standard homeowner insurance rates have skyrocketed, stretching household budgets. Overall inflation is another factor.

Experts also have pointed to another key deterrent: a gradual sea change in the way the government sets rates for its flood policies to address a chronic funding shortfall and to more accurately reflect the underwriting risks. The new pricing model, which began in 2021, incorporates a variety of factors aside from elevation and location.

Over time, an estimated 23 percent of policyholders would see their premiums drop under the rollout, while the rest would see increases capped at 18 percent annually, according to FEMA.

Not everyone is thinks "Risk Rate 2.0" holds water, including South Carolina. It's among 10 states that sued FEMA and other agencies to block the pricing reforms, alleging the changes will depress real estate values and and shrink local tax bases.

Louisiana Gov. Jeff Landry, who filed the litigation in 2023 while attorney general and whose state would bear some of the steepest increases, said in a written statement the federal flood program has become its "own natural disaster, with some premiums increasing tenfold for policyholders."

A judge denied FEMA's request to have the case dismissed in March.

In the meantime, the S.C. Department of Insurance is advising residents to learn about flood insurance and to strongly consider buying it if their homes are in harm's way.

“Debby brought rain, wind, tornadoes, and power outages, but flooding has been a significant cause of damage in our state," Michael Wise, the agency's director, said in a written statement last week, before flash floods inundated residential areas of Berkeley and Dorchester counties early Friday.

He also urged property owners "to consider whether flood coverage would benefit them prior to the next event.”