New FEMA maps and flood insurance could mean premium increases

Reforms to the FEMA Flood Insurance Program passed by Congress in 2012 are rippling across Grays Harbor County and will trigger waves of increases in premiums on properties in designated coastal and low-lying areas.

But Congressional action could lead to a reprieve and reform of the reforms. Sobered by the real world effect on their constituents, the Senate voted Thursday 67-32 to approve a bipartisan bill that would delay the dramatic increases. The Homeowner Flood Insurance Affordability Act now goes to the House for consideration.

The congressional action comes at a time when FEMA officials are coming to Grays Harbor to explain the reforms passed in 2012. The sole public meeting about the changes is Thursday, Feb. 6, from 6 to 8 p.m. at the Rotary Log Pavilion in Aberdeen.

Backers of the bill warn unless premium hikes of up to tenfold are delayed, they could force people out of their homes and small businesses because they cannot afford coverage. That could drive down property values and hurt the economy.

Congressman Derek Kilmer is one of 181 co-sponsors of similar legislation in the House. He met with homeowners in the area and “has heard about the very real and severe impact this is already having on homeowners,” his spokesman said. “He heard that they are seeing a rapid, immediate and substantial decline in property values.”

House leadership has said the bill will not come up for a vote, which Kilmer thinks is a mistake. Speaker John Boehner has said he opposes repealing the 2012 reforms but might consider changes to help homeowners.

Opponents of the new bill argue a delay would undermine FEMA’s National Flood Insurance Program which insures an estimated five million people and is $24 billion in debt, Reuters reports. Local figures were requested but have not come in from FEMA.

The Obama Administration backed away from earlier support for the 2012 reforms, known as the Biggert-Waters Flood Insurance Reform Act and helped rally support for the new bill. The new reforms would delay rate hikes for four years while FEMA drafts a new plan to make premiums affordable and re-evaluate the accuracy of new maps of flood-prone areas.

Proposed new FEMA flood maps with new base flood elevation levels, have already led to increased costs for some home and business owners in high risk and special flood hazard zones.

If you “obtain a loan from a bank that is a member of the Federal Deposit Insurance Corp. then you are required to purchase flood insurance as well as hazard insurance for your federally backed loan,” said Erin McCowan, an agent at Durney Insurance. “Conventional, construction, lines of credit, all of these loan types are effected.”

Unlike hazard insurance, flood insurance must be paid all at once, not in payments.

Complicating matters, FEMA has yet to release official, new flood maps though preliminary versions are circulating around the Harbor.

The current reforms passed overwhelmingly in 2012 were aimed at making FEMA’s flood insurance fiscally sound and did not predict that premiums would go up so much. Reforms are aimed at eliminating discounts or subsidies and grandfathering in older properties. The reforms would also discourage people from rebuilding over and over in flood prone areas.

FEMA flood insurance clients in special flood hazard zones who currently receive a discount can expect to pay much higher premiums. These subsidized flood insurance clients could pay increased premiums of as much as 25 percent each year until they reach a so-called full-risk rate.

“This issue will greatly affect those who live in the designated areas, as well as those who wish to buy, sell or re-finance their homes,” said Cosmopolis Mayor Vickie Raines, who was briefed by FEMA at the last meeting of the Chehalis River Basin Flood Authority, which she also chairs. She was told 10 of 18 flood-insured properties in Cosmopolis will likely have premiums hiked.

Exactly how much the reforms will cost is still uncertain.

If the changes are allowed to go fully into effect, the changes could cause an economic downturn in real estate similar to “three of four mill closures,” said Mayor Jack Durney of Hoquiam. Durney still works at Durney Insurance, which he sold to his son in 2012.

“These are catastrophic premiums for catastrophic coverage that has a limited likelihood of happening,” said McCowan, who specializes in flood insurance for Durney Insurance. She listed a litany of raised premiums, mainly affecting properties that are not primary residences. A house on Spruce Street in Hoquiam went from $596 a year to $4,583, a property on Arnold in Hoquiam went from $954 to $4,396; another on Cherry jumped from $720 to $3,448, she said.

A tenant-occupied house on Canyon Court in Aberdeen is increasing from $1,447 to $,1693. On Emerson Avenue in Tokeland, a new policy for $150,000 in coverage costs $3,413 a year, McGowan said.

The reforms may make sense overall, but it will take 50 years or so to tell, and the pain meantime could be great, she said.

Federal regulations covering flood insurance first passed Congress in 1968 after Hurricane Betsy. Floods have caused more than $25 billion in damages over the last 10 years, FEMA said. Recent disasters such as Superstorm Sandy and Katrina have helped put the agency in the hole.

To fill up the coffers, Congress overwhelmingly passed reforms to the flood insurance program in 2012 and required FEMA to raise rates. They ordered policies be brought up to a so-called full-risk rate, a rate determined by FEMA to cover average claims payments and administrative expenses.

Currently affected are homeowners in designated areas who find they must now purchase an elevation certificate which can cost from $500 to $900 before they sell their homes, whether or not they have been paying for flood insurance.

Purchasers of homes in these areas have to pay the higher, so-called full risk rates right from the start.

The old maps, last reviewed more than 25 years ago, are being modernized and put into digital format. Formerly, risk on the West Coast areas was updated by extrapolated data gathered from the hurricane-ravaged East and Gulf Coasts.

New technology, including Lidar and updated computer models about local area storms, were used to more accurately capture the flood elevation levels and risks faced on the West Coast.

Durney wonders why the West Coast has had to pay for conditions that primarily exist on the East and Gulf Coasts. “Why is our ox getting gored?” he said.

He also acknowledges that spread of risk is needed to bring premiums down. “In the words of my father, ‘the premiums of the many pay the claims of the few,’” he said.

Flood insurance is only required for those living in higher risk zones, not on properties in low and moderate risk areas, which is part of the reason why premiums can be so high, McCowan and Durney said.

Property owners should consult their insurance agents about “difference in condition” policies that can cover earthquake and landslide as well as flood damages. Premiums may be lower and currently meet federal requirements. They are underwritten by underwriters such as Lloyd’s of London.

Flood insurance through the federal government is limited to $250,000 worth of coverage. Difference in condition policies can insure for higher amounts. Also at issue is the cost of replacing homes, they said.

Both warn against allowing policies to lapse or not carrying the flood insurance because of the higher cost of reinstatement.

The Skinny … for now

The hikes in premiums affect people who want to sell, buy or refinance their homes and properties. Non-primary residence increases began Jan. 1. Properties that have incurred repetitive loses, properties that have cumulative paid flood losses in excess of fair market value came into effect Oct. 1 of last year.

Property purchased on or after July 6, 2012 or new polices effective before or after that date are being written at the full risk rate. So are lapsed policies reinstated on or after Oct.4, 2012.

“Owners of primary residences that do not fit any of the categories above can keep their subsidized rates as long as they own the property, but full-risk rates will apply for the next owner,” FEMA documents say.

Next: The voices of those affected on Grays Harbor. Reminder: the lone meeting for the public is at the Aberdeen Rotary Log Pavilion, Thursday from 6 to 8 p.m.

Erin Hart, 360-537-3932, ehart@thedailyworld.com. Twitter: @DW_Erin


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