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How 2020 revamp of federal flood insurance rates could affect you

Location and rebuild cost are driving the new rates, FEMA and industry experts said. The overhaul has both support and criticism.

Dottie Richards in front of her home on

Dottie Richards in front of her home on Nebraska Street, about a block from the water, in Long Beach. She pays $600 a year for FEMA to insure her home, and she's not sure what she'll do if her premium spikes. "I can't afford to stay here much longer," she said, pointing to dueling expenses of flood insurance and property taxes. Photo Credit: Howard Schnapp

Sweeping changes are coming to the federal government’s flood insurance program that will leave Long Island’s 90,000 policyholders with new premiums weighted heavily on location. 

The revamp of the National Flood Insurance Program is being billed by its administrator, the Federal Emergency Management Agency, as the most significant in the program's 51-year history, though the 5 million policyholders nationwide haven't been notified of the changes set to go into effect in October 2020. 

Under what FEMA calls "Risk Rating 2.0," premiums will be based on how close a home is to the coastline and how much it would cost to replace. Today on the Island, all homeowners in a government-designated high-risk flood zone pay the same rates for the same coverage, depending on the town or village they live in.

The overhaul is coming three years after homeowners saw their premiums increase nearly 20% to slowly close a roughly $20 billion shortfall incurred from a series of catastrophic storms in the past decade that include superstorm Sandy.

Since FEMA laid out the overhaul in a 221-word statement on its website a few weeks ago, pushback has been building at the state and local levels.

Senate Minority Leader Chuck Schumer (D-N.Y.) is demanding that FEMA put the plan on hold until Congress gets a full accounting of the cost to Long Island homeowners, both in terms of premiums and property values, and the impact on the Island's housing market. Others voicing opposition are Laura Gillen, supervisor of the Town of Hempstead, and Gov. Andrew M. Cuomo.

Laurie Lohrer is resigned to paying a higher rate. In the past two decades, the accountant has seen her annual premium for her home in Lindenhurst — a mile and a half from the water — jump from $1,200 to $2,500. 

"There's not much I can do about it," said Lohrer, who had an $85,000 repair bill for the 3 feet of water that her home took on during superstorm Sandy six years ago. "I am kind of stuck."

X factors 

Location and replacement cost are driving the new rates, FEMA and insurance experts said.

Owners of homes closer to the water and more expensive to rebuild should brace for a spike in their premiums. Owners of homes farther inland and less expensive to replace should expect to see their rates drop.

For example, a home on the water's crest in South Merrick is going to have a higher rate than a home in Bay Shore four miles inland. And a $5 million home will have a higher rate than one that would cost $900,000 or $2 million to replace.

Risk Rating 2.0 will use sophisticated GPS mapping data, supplied by the private sector, to determine a property’s specific flood risk. Besides proximity to water, insurance experts said, FEMA could consider elevation; the number of trees in the neighborhood or on the property; or the age of storm drains on a given street.

The program also will pinpoint areas prone to flash flooding or heavy rains, experts said.

Risk Rating 2.0 will help "customers better understand their flood risks, provide them with more accurate rates based on their property's unique risk and offer more equitable rates to owners of lower-value homes," David Maurstad, FEMA's deputy administrator for insurance and mitigation, told reporters last month.

Maurstad's remarks and the online announcement aside, FEMA hasn't laid out details of the overhaul and did not respond to requests for more information about the program and how it will affect Long Island policyholders. 

Right now, Dottie Richards pays $600 a year for FEMA to insure her home in Long Beach. She lives on Nebraska Street, about a block from the water and lined with mostly single-family bungalows.

She's not sure what she'll do if her premium spikes. She had to buy a policy after FEMA paid out $15,000 to cover the damage that Sandy did to the first floor of her two-story home.

"I can't afford to stay here much longer," said Richards, pointing to dueling expenses of flood insurance and property taxes. "I am trying to hold on but I don't think I will make it through another incident like Sandy."

Seeing red

Most of the Long Islanders who have federal flood insurance are required to have it. 

The government mandates flood insurance for two groups:

  • Homeowners who both have a federally backed mortgage and live in a high-risk flood zone, called a 100-year floodplain.
  • Homeowners who have received financial assistance from the government after making a claim.

    Nearly half of the roughly 5 million policyholders nationwide live in a 100-year floodplain, according to government statistics. Within the 100-year floodplain are smaller areas that range from moderate to high risk. On the Island, the majority of homes in the 100-year floodplain are on the South Shore. 

    About 44 percent of homes in a 100-year floodplain are in areas of more modest risk. Annual premiums of those properties average from $2,500 to $3,000, according to the government's nonpartisan Congressional Budget Office.

    Another 3 percent are beachfront properties, considered by FEMA to be at the greatest risk of flooding. Annual premiums can run into the tens of thousands of dollars, CBO numbers show.

    The other half of policyholders live outside the 100-year floodplain but voluntarily purchase flood insurance, generally for less than $500 a year, the CBO said.

    FEMA provides subsidies to roughly a fifth of policyholders. The subsidies apply primarily to homes built before communities adopted flood maps and to properties added to high-risk zones when maps were updated.

    In New York, the average annual premium stands at more than $1,100, according to FEMA statistics. The average is about $700 nationwide.

    Revenue from premiums, though, hasn't kept pace with payouts since 2005, when Hurricane Katrina socked a swath of the Southeast, FEMA said.

    The category 5 storm turned out to be the costliest in U.S. history, records show, causing $81 billion in property damage and having an overall economic impact of $150 billion.

    FEMA paid out nearly $17 million in Katrina claims, leaving the National Flood Insurance Program in the red for the first time since it was established in 1968. Congress decided to wipe out the Katrina debt in 2017, at the same time FEMA hiked premiums by 20%. 

    Still, the program is in deep debt from a decade of monster storms that culminated with 2017's one-two punch of Hurricane Harvey in Texas and Hurricane Irma in Florida. 

    Nearly seven years ago, Long Islanders learned firsthand about the havoc wreaked by weather.

    Sandy in October 2012 is listed by the government as the third most costly storm in terms of flood payments, nudged out of second place by Harvey.

    FEMA paid $8.8 billion to 132,360 policyholders across the Northeast who reported damage from Sandy. The average payout: $66,517. Harvey cost FEMA $8.9 billion. The payouts went to 76,257 policyholders, who received an average of $116,823.    

    Just after Katrina, the nonpartisan Government Accountability Office began sounding the alarm about the program's solvency — and hasn't stopped taking FEMA to task.

    "Emphasizing affordability has led to premium rates that in many cases do not reflect the full risk of loss and produce insufficient premiums to pay for claims," the GAO reported in 2017. "In turn, this has transferred some of the financial burden of flood risk from individual property owners to taxpayers as a whole."

    In the same report, the GAO called on FEMA to update the way it sets premiums. A year later, in its annual assessment of the flood program, GAO noted that FEMA was retooling its premium methodology with a rollout date of 2020.

    Opposing minds

    The overhaul has its supporters and detractors.

    One ardent proponent is R.J. Lehmann of the R Street Institute, a Washington-based libertarian think tank. FEMA's new risk-based model is desperately needed to adapt to climate change, said Lehmann, the institute's director of insurance policy.

    By the end of the century, sea levels are expected to rise at least 26 inches largely because of climate change, according to NASA data. The high levels will be enough to flood major coastal cities, scientists theorize.

    "Something has to change," added Aaron Stein, president of Norton and Siegel, Inc., a Babylon firm that provides policies through FEMA, including about 500 on Long Island. "More people need to pay something to keep the program going. Mother Nature is not asking. Mother Nature is telling."

    A powerful voice for homeowners is Schumer, the most senior of New York's congressional delegation.

    The Senate minority leader came to Long Island last week to call attention to Risk Rating 2.0, which FEMA can implement without congressional approval.

    FEMA, he said, must provide details on how rates will be calculated; who will be gathering and measuring the data; the systematic implications of insurance rates doubling or tripling for homes at the highest risk of flooding; and measures to provide oversight of the insurance companies that FEMA contracts with and the lawyers who defend their claims.

    "We want reforms, but we want them good for homeowners," Schumer said, standing in front of a home in Long Beach with local officials. "We want a flood insurance program that provides homeowners with flood protection at a stable and fair cost."

    Gillen, the Hempstead Town supervisor, speculated that increased flood insurance premiums "could be absolutely devastating to the middle-class families throughout the South Shore of Long Island."

    The governor wants any rate revamp to be more deliberative and inclusive. 

    "In New York, we are keenly aware of the damaging effects of extreme weather, and we adamantly oppose any knee-jerk actions by FEMA to unilaterally change current criteria," said Cuomo spokesman Jason Conwall.

    For Mitchell Pally of the Long Island Builders Institute, the worry is that higher flood insurance premiums will cause coastal property values to decline and hurt the resale market.

    "This will have cascading effects for Long Islanders," said Pally, the institute's chief executive. "This is not the best way to solve the problem and is not in the best interest of the water-bearing communities on Long Island."

    Lehmann, though, argues that Long Islanders aren't going to see across-the-board rate hikes because they pay more for flood insurance than they get back in claims.

    As evidence, Lehmann points to CBO numbers that show Nassau and Suffolk counties are two of only 59 counties nationwide with a surplus of more than $2 million in the current program. By contrast, dozens of counties in southeastern states including Florida, Louisiana, Alabama and Mississippi have program shortfalls in excess of $10 million, according to the CBO. 

    "The bottom line is that most people on Long Island should see reductions," Lehmann said. "This is not a sound-the-alarm moment."

    Susan Kramer is forking over $3,600 a year for her flood insurance coverage. She has seen her premium climb from $1,500 since Sandy, when 5 feet of water rushed into her home on Long Beach's Fulton Street. 

    A dog walker, Kramer doesn't think it's fair that Long Islanders overall pay higher rates than policyholders in other parts of the country, particularly down South where storms seem more common and damaging. 

    “We are subsidizing other parts of the country,” Kramer said. “The system is sick and should be privatized.” 

    More choices

    Risk Rating 2.0 comes as FEMA faces new competition. 

    For decades, private insurers refused to underwrite flood policies because they lacked the tools to accurately measure risk. But with better modeling and mapping, they're venturing into the market.

    In 2017, 33 private companies wrote flood insurance policies totaling $589 million, according to data from S & P Global Market Intelligence. 

    The American Property Casualty Insurance Association, a trade group for private insurers, supports a comprehensive solution to better protect communities, homes and businesses.

    “The solution should include reauthorizing and reforming the National Flood Insurance Program; expanding and enhancing flood insurance options; educating consumers and communities about their flood risk and improving mitigation and resiliency programs to better prepare before the flooding occurs," said Tom Santos, the association's vice president of public policy advocacy.

    Since Sandy, Long Islanders in the 100-year floodplain have gone to great lengths to reduce their insurance rates, including enduring months of construction and six-figure costs to elevate their properties. 

    Homeowners can petition FEMA to take them out of the floodplain zone altogether by obtaining an elevation certificate showing their home is located out of the reach of stormwaters.

    In total, the state has committed to elevating nearly 3,500 Long Island homes, with just over half already completed, officials said.

    Robert Connell saw his flood insurance plummet from $1,800 to $542 a year after he received funds from New York Rising, the state's storm recovery program, to elevate his Bellmore ranch home, which suffered $70,000 in damage from Sandy.

    "I shouldn't even need flood insurance anymore," said Connell, who fears he could see his premium climb again under the new program. "I should not be punished for doing the right thing."

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