The risk of flooding is a growing credit challenge for U.S. state and local governments, given increased frequency and severity of events, residential development in flood zones, and limited insurance, Moody's said in a report.
Rising property insurance costs, declining property values and the need for extensive investment in climate-resilient infrastructure create challenges, Moody's said.
Moody's said three of the four states with the highest risk for flooding are in the Southeast: Louisiana, Florida and South Carolina. Texas is the fourth. Counties with the greatest risk are adjacent to the Atlantic Ocean and/or the Gulf of Mexico.
The study was based on Moody's-generated maps of flooding risk under three different scenarios and the use of National Flood Insurance Program coverage.
Less than 2% of counties carry 65% of the uninsured residential loss exposure nationwide, Moody's said, based on a scenario assuming the risk of floods at a one-in-100-year model. The county concentration remains fairly stable in its other models, Moody's said.
The other scenarios are one-in-500-year floods and projected risks of one-in-100-year floods in 2050. All scenarios assume current levels of insurance and government policies and infrastructure.
The one-in-100-year scenario indicates a $375 billion gap in flood insurance coverage, the one-in-500-year scenario indicates a $1 trillion gap in flood insurance, and the 2050 one-in-100-year scenario a $472 billion gap.
"This report highlights that Congress's inability to adequately identify and map shifting flood exposure has consequences for local governments who often take on fiscal burden of uninsured properties that depress their tax base," said Jesse Keenan, director of Center on Climate Change and Urbanism at Tulane University, who wasn't involved in creating the report.
"With more and more homeowners foregoing flood and windstorm insurance, there is a growing sub-systemic risk exposure that is spreading to the muni bond market," Keenan said.
In the one-in-100-year scenario, the counties with potential residential flood insurance deficits of more than $5 billion are all along the coasts of Florida,
Flooding in Asheville,
High levels of insurance protection gap and counties' abilities to withstand shocks, "will determine credit impact," Moody's said. The ratio of losses to property values in counties will also be considered.
Federal Emergency Management Agency-specific flood hazard area maps are used to determine if mortgaged properties need flood insurance. However, they emphasize riverine flooding and give little attention to increasing flood risk from
Moody's didn't look at commercial and governmental deficits in flood insurance in its study, and these would add to credit risks.
