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                        Research and Insights
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                        Challenges Remain in Raising Consumer Awareness of Flood Risk
    Perspectives Blog
Challenges Remain in Raising Consumer Awareness of Flood Risk
December 12, 2023
New Fannie Mae Survey Highlights the Continued Challenges and Opportunities to Raise Consumer Awareness About Flood Risk and Flood Insurance
Saiful Amin
    Saif Amin
    Senior Director – Climate Impact Strategy
              Li-Ning Huang
    Li-Ning Huang
    Principal – Market Research
Climate change presents both immediate and long-term risks to many in the housing ecosystem, including homeowners, renters, lenders, investors, and insurers. We recognize the frequency and intensity of major weather-related events in recent years are indicative of climate change, the impacts of which are expected to persist and worsen in the future. As we work to advance equitable and sustainable access to homeownership and quality, affordable rental housing in the U.S., we continue to focus on how climate change and responses to climate change could affect the homeowners and renters we serve.

Fannie Mae recently refreshed its 2020 national flood survey of homeowners and renters in the U.S. The aim of the refresh was to expand our understanding of consumer awareness and attitudes toward flood risk, flood insurance, and related resources, and see how results may have changed from the 2020 survey. In the update, we also expanded sampling of Black and Hispanic/Latino households to better understand their views on these important topics. Nearly 4,000 people nationwide responded to the survey, residing in areas across three flood-risk categories: high-risk1 (100-year flood zone/Special Flood Hazard Area [SFHA]), medium-risk2 (mid-risk; 500-year flood zone), and other.3

The key findings from our 2022 survey were:

1) Improving awareness remains a key priority – a significant share of consumers have a poor understanding of the flood risk of their residence.

Despite personal flooding experience, overall awareness of flood risk is low, particularly for those in high-risk zones.
	Medium-risk respondents have mixed understanding of flood insurance and their coverage.
	There is room for improvement regarding consumer awareness of the Federal Emergency Management Agency's (FEMA) National Flood Insurance Program (NFIP) and Risk Rating 2.0.2) Consumers are worried about flood insurance affordability and rising risk – the stated level of insurance adoption seems low and consumers are concerned about cost. ****

Respondents expressed both a desire to mandate insurance in high-risk zones and rising concern with increases in flood insurance premiums impacting affordability.
	Consumers are concerned about homeownership costs and home value declines due to flood risk.
	Consumers are worried about the impact of climate-related events.3) Many opportunities exist to increase awareness and knowledge – there is clearly some appetite and willingness to pay for mitigation of the risks. ****

Some consumers are taking steps to learn about and minimize flood risks, though few say searching for information is very easy.
	Consumers want information about their current risk, and flood disclosures could help.
	Consumers view government agencies as the most trusted source of information.**Improving flood risk awareness remains a key industry priority**

*Despite personal flooding experience, overall awareness of flood risk is low, particularly for those in high-risk zones.*

Our survey found that one-in-eight respondents have experienced a flood at their current residence, with half reporting experiencing flooding in the past five years. Prior flooding experience was more prevalent among Black respondents, with one-in-five Black respondents (20%) reporting they have had a flood at their current residence. In comparison, 14% of Hispanic/Latino respondents and 13% of White respondents reported the same. This higher degree of personal experience with flooding might help explain why Black respondents, according to the survey, perceived a higher risk of flooding in their community and their homes relative to others.

Consumer awareness of FEMA's role in identifying flood risk zones was approximately 80% overall, and nearly 90% for high-risk respondents. However, this awareness of FEMA's role did not translate into accurate flood zone identification, as most respondents in the survey were unable to correctly identify the flood risk zone in which they reside. Approximately 40% of those in high-risk zones and only 5% of those in medium-risk zones correctly identified their homes as located in those risk zones. These results were similar to the results from 2020, indicating that significant work remains to improve individuals' understanding of their own flood risk.



*Medium-risk respondents have mixed understanding of flood insurance and their coverage.*

Flood risk awareness and challenges with understanding risk are still more pronounced for medium-risk respondents. For instance, while nearly half of those living in high-risk areas said they are very familiar" with flood insurance, only 26% of respondents in medium-risk areas said so. Consistent with observations from the 2020 survey, medium-risk respondents lagged in insurance coverage, with only 15% noting having a separate flood insurance policy compared to about 40% in high-risk areas. Furthermore, only 46% (29% in 2020) of medium-risk respondents said they are aware of the availability of flood insurance for their residence, compared to 73% (53% in 2020) among high-risk respondents.

*Consumers have poor awareness of FEMA's NFIP and Risk Rating 2.0.*

Our 2022 survey also attempted to better understand consumer awareness and understanding of FEMA's recent implementation of Risk Rating 2.0, an updated NFIP pricing methodology.4 The results highlight room for improvement about this important FEMA initiative. Overall, NFIP awareness has slipped slightly since 2020 (a decrease from 45% in 2020 to 41% in 2022), with only half of high-risk respondents and 36% of medium-risk respondents saying they are aware of the NFIP. By comparison, awareness for Risk Rating 2.0 is much lower at 18% (23% among high-risk respondents and 14% among medium-risk respondents). The results indicate that consumer awareness of NFIP has declined, and most respondents are unaware of Risk Rating 2.0. Another worrisome finding is that among those who said they have flood insurance, the share claiming that the NFIP is their insurance provider decreased (from 53% in 2020 to 47% in 2022), with about one-third of respondents in both 2020 and 2022 believing they have a private, non-NFIP policy.5

**Consumers are worried about flood insurance affordability and rising risk**

*Respondents are increasingly concerned with increases in flood insurance premiums impacting affordability.*

In both the 2020 and 2022 surveys, respondents expressed concerns over flood insurance affordability, with 24% overall in 2022 (25% in 2020) and 29% of those in high-risk areas saying it is not very or not at all affordable in 2022 (31% in 2020). Notably, our 2022 survey showed that this concern was even higher among Hispanic/Latino respondents (34%). Additionally, over half (56%) of those with a separate flood insurance policy said their premium has increased over the last year, which may be driven by the pricing changes brought about under Risk Rating 2.0.6 Importantly, while year-over-year premium increases are capped at 18%, we believe that these increases could have tangible impacts on consumers.

Consumer concerns regarding flood insurance premium increases went up significantly in 2022, with 43% (31% in 2020) saying they were extremely or very concerned. Concern was more pronounced among respondents living in high-risk areas, with 46% (35% in 2020) saying extremely or very concerned. In comparing survey groups, Black and Hispanic/Latino respondents exhibited higher degrees of concern at nearly 50%, compared to 42% among White respondents. Among those who have experienced premium increases, over 37% said the increase is having a serious or moderate impact on their household finances. Given that flood insurance is a crucial mitigant of flood risk for respondents, this growing sentiment that insurance is unaffordable could constrain consumers' ability to appropriately protect their properties.

*Consumers are concerned about homeownership costs and home value declines due to flood risk.*

Many respondents are also noticing increases to their homeowners' insurance premiums, with about 20% reporting the premium increase to be "significant." Recent insurance market trends have been unfavorable to consumers across the United States, but especially so in Florida, Louisiana, Texas, and California. Certain factors, like the rising severity and frequency of natural disasters, are even leading some insurers to stop writing new policies or pull out of certain states altogether. These trends are likely to result in more costly insurance policies. The trends also aligned with the survey findings, which showed an average of a nearly $250 annual increase among respondents whose homeowners' insurance premiums have increased.

The survey revealed respondents are also increasingly concerned with possible reductions in home value if their residence were to be designated as located within a high-risk flood zone (24% in 2022 vs. 20% in 2020). This was most pronounced among respondents with property already located in high-risk areas (29% in 2022 vs. 23% in 2020). The concern level is even higher among Hispanic/Latino (33%) and Black respondents (37%) with properties located in high-risk areas. Furthermore, the overall concern about mandatory insurance requirements if their property were to be listed as high-risk for flooding has increased since 2020 (26% in 2022 vs 20% in 2020).

*Consumers are worried about the impact of climate-related events.*

Respondents expressed concerns regarding the impact of climate-related events on their properties. For instance, more respondents in 2022 (29% in 2022 vs. 24% in 2020) believe that their home has a high or medium risk of flooding, with the highest concentrations among property owners in high-risk areas (46% in 2022 vs. 40% in 2020). Over 40% of those surveyed reported being at least moderately impacted by climate-related events (e.g., strong storms, wildfires, and droughts) in the past five years; nearly 50% of respondents in high-risk zones indicated being impacted. When assessing the impact of various climate-related events, respondents in high-risk zones were more likely to say they are concerned with strong winds/hurricanes/tornados (44%) and flooding (30%), while medium-risk respondents showed more concern for oppressive heat (35%), drought (37%), and wildfires (23%). When reviewing the results by group, Hispanic/Latino and Black respondents expressed significantly more concern for flooding than White respondents, with Black respondents being more than twice as concerned (41%) about flooding as White respondents (19%). Even so, respondents still view costs associated with homeownership (e.g., home maintenance (30%), increasing property taxes (25%), and inflation concerns (24%)) as top stressors compared to concern over climate impacts elevating natural hazard risks (13%).

**Many opportunities exist to increase awareness and knowledge**

*Some consumers are taking steps to learn about and minimize flood risks.*

Despite the challenges identified by the survey, we believe there are opportunities to continually raise awareness and understanding of flood risk. Fifty percent of survey respondents said they have searched for information about flood risk to their home (59% in high-risk zones), an encouraging finding. However, searching for flood information does not seem to be easy, with only 16%, compared to 20% in 2020, saying searching is very easy. This rising difficulty highlights a need to communicate risk information clearly and effectively to consumers and make accessing this information as simple as possible.

Survey results also revealed that respondents are taking steps to mitigate their risks, another encouraging finding. The share of respondents reporting taking steps to minimize potential flood damage to their homes has increased since 2020 (28% in 2022 vs. 21% in 2020), led by those in high-risk zones (39% in 2022 vs. 29% in 2020). High-risk zone residents were also more likely to say they purchased flood insurance (52% high-risk vs. 35% medium-risk) and moved high-value personal objects to higher ground (33% vs. 24% medium-risk). Furthermore, almost two-thirds of respondents said they would spend at least $5,000 on investments to potentially avoid $100,000 in flood damage, indicating that a strong majority of people are willing to invest to mitigate their risks.



*Consumers want information about their current risk, and flood disclosures could help.*

The survey results also indicated consumers want flood risk information to inform their living decisions. Nearly 50% said they would try to avoid high flood risk areas if they could, led by medium-risk respondents (56%), compared to only 36% in high-risk areas. When looking at a potential new home, respondents believe it is critical to understand relevant flood-related information, such as prior flood damages to the property (51%), the current flood insurance premium (33%), the flood zone designation (33%), and if any flood insurance claims were filed in the past (38%).

Despite these preferences, only 41% of respondents in high-risk areas and 30% in medium-risk areas said they were informed of flood risk prior to moving into their current home. Real estate agents were cited as the most popular source to inform buyers of the risk across risk zones (49% overall). Importantly, though, for medium-risk respondents, where awareness is low relative to the risk, those in states with strong legally required disclosures (A/B states according to the Natural Resource Defense Council7) were significantly more likely to say they were informed of flood risk prior to moving (41%), compared to C/ D grade states (28%) and F grade states (25%). While mandatory flood disclosure laws are not a "one-size-fits-all" solution, the survey results suggest that consumers want to obtain flood-risk information, and disclosures could help consumers make more informed decisions regarding home choice.

*Consumers view government agencies as the most trusted source of information.*

Respondents continued to cite FEMA as the most trusted source for flood risk information, with the share growing since 2020 (47% 2022 vs. 41% 2020), followed by other government agencies (10%) and insurance agents (7%). These results highlight a critical role FEMA and government agencies play in communicating flood risk information to consumers. For flood insurance information, similarly, people view the government (61%) and insurance agents (21%) as the most trustworthy resources. Additionally, about half of respondents claimed to have reviewed community flood maps, and, among them, the FEMA website was the most frequently cited resource (53%).



**Moving Forward**

The results of this survey indicate that significant work remains to educate consumers on flood risk and mitigation options. We continue to be encouraged by consumers' desire to learn more and their willingness to leverage available information to make more informed decisions.

There is more that the housing industry, government institutions, and other stakeholders can do to enhance consumer-focused communications, ensure access to reliable flood-risk information, and to make it easier for consumers to make informed choices about whether flood insurance is right for them. At Fannie Mae, we will continue our work to gather insights on this important topic and collaborate with partners to increase consumer awareness. We have also redesigned and improved flood-related content for consumers on FannieMae.com. With effective collaboration, industry participants across housing, insurance, and natural disaster services can help consumers better manage flood risk and promote safe and sustainable homeownership.

To learn more, read the refreshed 2022 survey research, "Consumer Flood Risk Awareness and Insurance Study".



Fannie Mae provides reliable resources for homeowners, including information on flood insurance. We remain committed to helping homeowners and renters with information, services, and products to navigate the impacts of a changing climate.

*The authors would like to highlight significant contributions from Steve Deggendorf, Alex Farley, and Tim Judge in the creation of this commentary and the design of the research. The authors would also like to thank Anushka Limaye, John Burley, Sarah Truman, William Crimmins, Clark Poland, and Matthew Classick for all their input and support towards this work. Of course, all errors and omissions remain the responsibility of the author.*

1A property is designated to be in a high-risk zone if its associated FEMA flood zone starts with "A" or "V." Collectively these zones are referred to as SFHAs. Federally-backed loans in SFHAs carry mandatory flood insurance purchase requirements.

2A property is designated to be in a medium-risk zone if the property is not in a high-risk zone but has substantial risk according to available sources, namely:

Its associated FEMA flood zone starts with "B" or “X" (shaded) for the 500-year flood zone3Designated to be in a Letter of Map Amendment (LOMA) / Letter of Map Change (LOMC) risk zone if LOMA effective data is non-null, and not included in a high or medium zone.

4For more information on FEMA’s Risk Rating 2.0 see Risk Rating 2.0: Equity in Action | FEMA.gov.

5The NFIP is a government program that requires periodic reauthorization from Congress. The NFIP’s last 5-year authorization expired in October 2017, and, since then, Congress has opted to extend it at prior funding levels for short periods of time.

6 FEMA stated that they expected 23% of policyholders to experience, on average, an $86 per month decrease in monthly premium cost. Additionally, FEMA expected 66% to experience an average increase of $0-$10 per month, 7% an average increase of $10-$20 per month, and 4% an average increase greater than $20 per month. Source: FEMA Fact Sheet – Understanding Risk Rating 2.0: Equity in Action (floodsmart.gov)

7See: https://www.nrdc.org/resources/how-states-stack-flood-disclosure for more information on definitions of flood disclosure scores. Categorization of states based on disclosure scores may not reflect recent updates to disclosure laws by state legislatures.
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Survey Findings

Flood risk, inland or coastal, is one of the most immediate concerns related to a changing climate for households. The Federal Emergency Management Agency (FEMA) is the primary source for flood hazard identification, categorizing flood hazard in tiers based on likelihood of occurrence. FEMA also administers the National Flood Insurance Program (NFIP), the primary source of flood insurance for most consumers. Fannie Mae requires loans to have flood insurance on properties located in FEMA-defined high-risk zones, which are called Special Flood Hazard Areas (SFHAs).

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