Higher flood insurance rates will be a financial disaster for some who live in special flood-hazard areas, Coast officials say.
"I think it's going to be huge," said Michele Coats, Jackson County's planning director. "You're going to see a lot of people who can't afford this. I don't think anybody here can afford the rates (the National Flood Insurance Program is) talking about ?.We got the impression after Katrina it wasn't going to change that much, the rates were going to go up a little. This is catastrophic."
The first wave of premium increases this year will hit only a small percentage of policyholders. Increases for a broader population will start in 2014.
Flood-plain managers say some residents of special flood-hazard areas will be priced out of homes or businesses they will be unable to sell. The economic ramifications are just beginning to sink in for coastal communities that have a significant percentage of people living and working in flood-hazard areas, where rate hikes will be most drastic.
Premium cap raised in 2012
Under the Biggert Waters Flood Insurance Reform Act of 2012, Congress raised the overall cap on flood insurance premium increases from 10 to 20 percent a year. The act also allows NFIP to charge an assessment that will establish a reserve fund.
But the real hit will come with an end to flood insurance subsidies that have been part of the program since its inception in 1968. Subsidies will be phased out with annual premium increases until polices reach rates that reflect actual risk outlined on Flood Insurance Rate Maps that apply in participating communities.
Flood Insurance Rate Maps delineate flood-hazard areas and elevations required to minimize risk. Policyholders will no longer be "grandfathered" under old maps, but will pay rates applied to newer maps that expand flood-hazard areas and dictate higher elevations to account for rising sea levels. In some communities on the Coast, up to 90 percent of structures are in special flood-hazard areas.
Subsidies eliminated
When increases will start and how much premiums will increase depend on how structures are classified -- rental, owner-occupied or commercial -- where they are, when they were built and their elevation.
Higher rates start for structures built before communities adopted the first flood maps in the mid- to late 1970s. For many homes and businesses, NFIP had charged rates lower than warranted in order to coax communities into the program.
Biggert Waters eliminates subsidized rates on those pre-map structures. Rate hikes will be triggered for a larger population of grandfathered policyholders beginning in 2014, when premiums are expected to be tied to flood maps adopted after July 6, 2012.
In Pascagoula, 25 percent of the city was in a special flood-hazard area under outdated maps used before Katrina. Under maps adopted after the hurricane, 90 percent of the city is in a flood zone. Waveland, Bay St. Louis and Pass Christian are similarly situated.
NFIP's focus changing
NFIP has been invaluable to building stronger coastlines, but Biggert Waters shifts the program's focus, said Spencer Rogers, a coastal erosion and construction specialist with the North Carolina Sea Grant extension program.
"What Biggert Waters appears to do is to remove the flood-plain management and look purely at the bookkeeping and treat it like a private insurance company and just raise the rates until you pay all your bills," Rogers said. "The big bills are Katrina, to some extent Rita and, now Sandy."
NFIP is $24 billion in debt, with borrowing power extended after Hurricane Sandy to $30.4 billion, said Andy Neal, an actuary with FEMA, which oversees the program.
Rogers and flood-plain managers on the Mississippi Coast say the new rate structure penalizes policyholders who followed FEMA's advice when they built before 2012 to the latest NFIP standards.
"Those of us that worked on flood maps were telling people to build in certain ways," Rogers said. "When we did that as flood-plain managers, I think we had some responsibility to live with whatever mistakes we all made when better technology developed and we realized that what was proposed earlier was not high enough or built in the right way to do it."
Some good news
The good news, Neal said, is a majority of policyholders have time to prepare for rate hikes. Only 14.3 percent of NFIP policyholders in Mississippi have subsidized rates subject to the first round of increases. In the three Coast counties, NFIP records show, only 1,825 policyholders pay pre-map rates subject to increase.
Those increases started Jan. 1 for the owners of non-primary homes, including rental property and vacation homes, with subsidized, pre-map rates. NFIP rates on these properties can increase 25 percent a year until full risk is reached. The 25 percent increase can take properties from hundreds to thousands of dollars in annual policy premiums, depending on the insured structure's location and elevation.
Beginning Oct. 1, the annual 25 percent increases also will apply to pre-map business buildings and to pre-map owner-occupied homes that have repeatedly flooded or suffered two flood losses that, combined, exceed the property's value.
Elevation certificate is key
NFIP's Neal said an elevation certificate is a must in the new environment. Some policyholders will be pleasantly surprised when they find their structures are above base flood elevations, entitling them to discounts. Most of the elevation certificates insurance agent Linda Ryan of Pascagoula has seen, though, show policyholders below base flood elevations, she said, meaning rate hikes.
Rate increases will start applying in 2014 to structures grandfathered under outdated maps. Rates for those structures will shift to maps adopted after July 6, 2012. Coast communities adopted new flood maps after Katrina, with no map updates are scheduled. Neal said Coast residents can continue to use grandfathered rates, even when homes sell, until the next map updates. However, they should maintain continuous coverage and not allow their policies to lapse, or risk subjecting the buyer to full-risk rates.
"The good news is, the sky isn't falling today," Neal said. "But, you need to know, if and when your map is updated in the future, you may be paying higher premiums."
Source: http://www.sunherald.com/2013/05/04/4642721/flood-insurance-rates-could-reach.html
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