Severely Damaged Homes Will See End of Flood Insurance Subsidies
For those who can scrape up the money, the race to elevate storm-damaged homes above base flood elevation is on. On Oct.1 of this year, those properties severely damaged by Superstorm Sandy that had been subsidized through the National Flood Insurance Program will see a 25 percent increase in their flood insurance premiums that will continue to rise each year until it reaches an actuary table reflecting actual risk.
The good news for Sandy victims whose homes are their primary residences and had been receiving the subsidy – generally homes that were built before the NFIP – if their homes were not severely damaged, their subsidy by the Federal Flood Insurance Program will continue with just a 5-percent rate increase.
The changes brought about by the Biggert-Waters Flood Insurance Reform Act, passed by Congress in 2012, were the topic of a March 29 phone press conference with Edward Connor, deputy associate administrator for the Federal Insurance and Mitigation Administration. “The Biggert-Waters Flood Insurance Reform Act is the first major change to the NFIP since 2004,” said Connor. “We’re excited about it. This piece of legislation will do a lot to bring stability to the program which has been a ‘stop and start program.’ This gives us five years’ authorization, which brings financial stability as it eliminates subsidies to at-risk properties and brings them up to their full actuary rate as required – as directed by Congress.
“This is a mandated program with many facets that are going to be difficult for some; we are trying to make it as easy as possible,” he added.
According to Connor, there are 5.6 million flood insurance policies nationwide, and 20 percent are receiving some sort of subsidy. The Biggert-Waters Act will reduce that number to 1.1 million, something he said is needed to get the program out of a debt spiral due to big payouts for damages from Katrina and other recent hurricanes. Currently the NFIP is $30 billion in debt, said Connor.
The first step in the overhaul of the program actually occurred Jan. 1 this year, when non-primary or seasonal dwellings (vacation homes) and rentals received a 25 percent rate increase that will continue until they reach full actuary rate. “This will take a few years,” said Connor.
“In addition, those that were severely damaged will be subject to the same increases.”
Another set of properties will be impacted at certain trigger points: those primary dwellings that were a new purchase after July 6, had existing flood insurance and allowed it to lapse, or had some change of ownership. Primary properties with severe repetitive losses will also lose their subsidy.
One thing that all policy owners should have is an elevation certificate that shows where the height of the building is in relation to the base flood elevation that is mapped for every property in a flood zone. “Your rate is going to be based on how your home is in relation to the Base Flood Elevation; the higher you are in relation to the BFE, the lower your rate is going to be,” Connor said.
“Sit down with your agent; they might also suggest higher deductibles that can lower your rate. The other suggestion is to get your local officials to join the Community Rating System.”
Some of the ways a community can earn discounts for its ratepayers are to require breakaway walls underneath elevated homes in its construction code and to make its flood map available to residents.
“Because of the complexity of the program, it’s not the kind of thing that we put on a renewal brochure, but we are trying to get the word out by providing bulletins to (local) stakeholders,” Connor said. Only 1,200 communities nation-wide participate in the program.
He said policyholders who find themselves in newly mapped flood zones since Sandy will not see their insurance rates increase because of the new zones until the maps take effect, possibly in 2015. “Once they are finalized, then any changes will be phased in.”
A reminder that others across the country will also be facing higher insurance rates came from a reporter from the New Orleans Times-Picayune. Benjamin Alexander-Bloch said of his parish, “Tens of thousands of people in new high risk areas have to elevate to higher levels or face these new rates that could be $15,000 to $25,000 a year. They feel they are being pushed out of their coastal communities in an effort to stop people from living in high-risk areas. Can they expect any help? Most people can’t afford to elevate; is there any money coming for buyouts?”
Connor said the numbers the reporter quoted might not be correct. “There’s a lot of numbers floating around. People need to look at their individual situations, depending on where they are in the flood plain. I don’t know if those numbers are accurate or not, and they throw fear into a lot of folks.”
That being said, he added, “Congress enacted the Biggert-Waters Act because the program is $30 billion in debt. Year after year people have not been paying the actual rate based on the risk. Congress did not put anything in the act dealing with affordability.”
Connors said there was a study on affordability during the rule-making process, and some in Congress wanted FEMA to establish an installment plan, but it did not make it into the act.
Ed Beeson of the Star-Ledger asked if the Advisory Base Flood Maps adopted by New Jersey’s governor that put many people who were in A-zones into more expensive V-zones were going to change. “Can we expect the maps to be less burdensome when adopted?” asked Beeson. “FEMA is telling the prudent homeowner to lift their home higher if they are rebuilding now. What should they do? If they are in a V-zone, should they wait to rebuild or not?”
A spokesman in risk-analysis said the maps were developed with the best available science and data available at the time that Sandy struck. He suggested people continue to look to their local government officials on how high to elevate when rebuilding.
But he also hinted that V-zones may change when the insurance maps come out in August. “The maps are an estimate on how big the waves are when formed over an open water area and did not take into account some of the complicated bays; they may be slightly overstated.”
When asked by this reporter if the NFLP had any plans to extend the requirement for flood insurance to all who are in high-risk areas – not just those who have a mortgage – in order to equalize the cost, Connor said, “We’d love to have full penetration; we’d love to have some discussion on requiring flood insurance for everyone, much like car liability, but that’s not the legislation that we have now.”
He added that those who do not have a mortgage and are considering dropping their flood insurance rather than pay the higher rates are truly “rolling the dice.”
“The most they could get (in the case of a national disaster) would be a maximum of $30,000, with the average award being $3,000 to $4,000; that’s not going to do much.”
A Biggert-Waters fact sheet can be found at www.fema.gov/bw12.
— Pat Johnson