Flood insurance changes go into effect despite bipartisan opposition
Lawmakers fear premium spike will force residents out of longtime homes
Tuckerton is one of the numerous New Jersey communities to see major flooding after Hurricane Sandy made landfall in October 2012. (Photo by U.S. Coast Guard via Getty Images)
The age of flood insurance subsidies may be coming to an end despite cries of protests from lawmakers who fear a monumental shift in how premiums are calculated could force residents out of their longtime homes.
The new system, dubbed Risk Rating 2.0 by FEMA, went into effect Friday for individuals who purchase new policies. Existing policyholders won’t see their rates climb until April.
In a departure from the way the National Flood Insurance Program (NFIP) has operated for decades, the new rating system will tie premiums to the risks faced by an individual property instead of basing price solely on factors like elevation.
The change, already the subject of bipartisan opposition, is expected to set off a surge in insurance costs along coastal communities across the country.
U.S. Sen. Bob Menendez said the insurance change should be delayed.
“It’s a system that has yet to be fully explained. It’s set to massively increase premiums on middle class and working families across the state, and for that fact, across the country,” Menendez, a Democrat, told the New Jersey Monitor, adding he supports updating how flood insurance premiums are calculated.
The change was signaled well in advance. It was initially set to go into effect in 2019 but was delayed in the face of bipartisan opposition.
NFIP premium increases are subject to annual caps of 25% for most types of properties — including ones that face repeated severe storm damage — with an 18% cap for lower risk properties. FEMA has said the new rating system will attempt to respect those caps, but residents in flood zones may have no other options.
Flood coverage from private insurers is a relative rarity because it often carries outsized risk for brokers. It can be a pitfall for residents too, since the premium increases are not subject to annual caps.
Private policy increases can be staggering, said Rob Conner, an account manager at Mints Insurance Agency who has sold flood coverage for more than a decade. Conner cited one policy that saw its cost spike by more than 300% in a single year, jumping from about $1,200 to more than $4,000.
Menendez and other senators who signed onto a September letter urging FEMA to abandon the policy say they fear higher NFIP premiums could force 900,000 Americans out of the program in coming years, citing figures from the Congressional Budget Office that have not been released to the public. That amounts to about 20% of all NFIP enrollees.
A spokesperson for FEMA contested those figures, calling them misleading and saying they were taken out of context. Risk Rating 2.0 would lead to increased flood insurance enrollment over the next decade, they said without elaborating.
But while the rate hikes could be extraordinarily disruptive in parts of New Jersey, they target a long-standing policy issue that has saddled the federal insurance program with more than $20.5 billion in debt.
Because private flood insurance is often unavailable to homeowners at the greatest risk for flood damage, the heavily subsidized federal program bears the costs of destructive weather events, even when such homes are destroyed multiple times. The resulting system is one observers call unsustainable.
“Insanity’s doing the same thing over and over and not learning,” Conner said. “If you’re rebuilding these homes at these subsidized rates in these same barrier islands over and over, that’s just not a system that’s going to last another three, four decades.”
Among lawmakers’ concerns is the opacity surrounding where premiums will eventually land. FEMA has only released data about the first year of rate hikes.
About 21% of New Jersey’s policyholders, 46,318 of them, will see their premiums decline in the first year. Of those policyholders, 13,188 will see their monthly bills drop by more than $100.
The remaining 170,860 Garden State policies will see their premiums rise, though the majority of those, 137,169, are set to increase by $10 or less per month. Just 318 policies will see their monthly premiums jump by more than $100 in the first year, and just one of those policies covers a single-family home.
Even with low annual increases, insurance bills a decade in the future could end up costing residents thousands of dollars more each year.
“There’s just a lot of unknowns at this point, which from an agent perspective is hard to certainly advise people on risk and price,” Conner said. “If they ask an honest question of ‘hey, what’s this going to be in 10 years?’ You don’t really have a very good answer for them.”
That uncertainty extends to prospective buyers and existing homeowners, who could be blindsided by massive flood insurance bills years into the future.
“I am concerned that many people who have owned their homes for many years and are not wealthy people might be forced to sell their homes, and that’s the downside of this,” said State Sen. Bob Singer (R-Ocean). “That should not happen.”
Put another way, residents could be forced to choose between moving out of homes they’ve owned for years, or even decades, or forgoing flood insurance.
Those fears are compounded in coastal counties like Ocean and Cape May. About 47% of the state’s NFIP policies belong to residents in those two counties, according to FEMA data, and census figures show residents there are disproportionately elderly compared to the state at large.
“I really believe that if the federal government wanted to do something, they should’ve been on a financial sliding scale because, both in Monmouth and Ocean Counties, you have a lot of people who have retired down here,” Singer said. “They’re on a fixed income.”
To a degree, the heightened costs are a method of encouraging residents in hazardous areas to move to zones with lower flood risks. Such movement is key to the program’s sustainability. Though properties that repeatedly suffer flood damage have historically accounted for just 1% of NFIP policies, they have been responsible for roughly 25% of claims.
Menendez and other lawmakers agreed the goal was a worthy one, but the senator said FEMA’s proposal did too little to enable residents to move to safer regions, and he urged instead the expansion of the New Jersey’s Blue Acres Program, which allows for state purchase of flood-prone properties.
“If you want to purchase my home and convert a whole zone into a blue acre where we don’t allow development, that’s a different set of circumstances, but that’s not what is largely being envisioned by what FEMA’s putting out,” he said, later adding, “To urge somebody to leave without help is like saying ‘yea, leave your home and everything behind because it’s in a flood zone, sorry’ — that doesn’t work.”
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