Flood Insurance Rates Rise For NJ Homeowners Under New FEMA Plan

Toms River NJ

01 October, 2021

2:58 PM

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NEW JERSEY — A new flood risk rating system that could mean significant increases in flood insurance costs for New Jersey homeowners took effect on Friday. But a group of senators has asked the Federal Emergency Management Agency to pause the program over concerns that the potential increases will cause thousands of homeowners to drop flood insurance altogether. The letter signed by nine U.S. senators, including Robert Menendez and Cory Booker from New Jersey, urged FEMA Administrator Deanne Criswell to delay the start of the Risk Rating 2.0 program, which was taking effect for new policies as of Friday. Homeowners who currently have flood insurance on their homes will start to see the increases with renewals in April 2022, according to FEMA. Those increases could be as much as 18 percent, which is the cap on allowed yearly increases in the cost of flood insurance under the National Flood Insurance Program, and according to the senators, would affect 75 percent of those who have flood insurance on their primary residences. In New Jersey, FEMA says more than 137,000 flood insurance policyholders would see premiums increase by up to $120 per year, or $10 a month, and more than 22,400 would see increases up to $240 per year, or $20 a month. More than 11,300 would see increases of more than $20 per month, and just over 300 would see increases of $100 per month, $1,200 per year, or more. Under the old system, New Jersey policyholders were seeing average increases of 11 percent, FEMA said. Risk Rating 2.0 includes a wider range of information beyond a property's elevation on a flood insurance rate map, which has been the basic determining factor in flood insurance rates since the 1970s, FEMA says. "With Risk Rating 2.0, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables. These include flood frequency, multiple flood types — river overflow, storm surge, coastal erosion and heavy rainfall — and distance to a water source along with property characteristics such as elevation and the cost to rebuild," the FEMA website says. Rebuilding costs in particular are being factored in and will have an impact on rates. According to FEMA, that will make rates more equitable. "Currently, policyholders with lower-valued homes are paying more than their share of the risk while policyholders with higher-valued homes are paying less than their share of the risk," FEMA says. "Because Risk Rating 2.0 considers rebuilding costs, FEMA can equitably distribute premiums across all policyholders based on home value and a property's unique flood risk." FEMA's information on the new ratings system focuses heavily on anticipated decreases in insurance costs for some homeowners. The senators' letter, however, says FEMA's own analysis shows rates will rise sharply for about 75 percent of flood insurance policyholders, and that roughly 900,000 policyholders will drop out of the program over the next 10 years as a result. "The potential for having a significant increase in uninsured homeowners leaves Congress in the unfortunate position of having to pass more expensive, less beneficial disaster aid on the back end each time a devastating storm strikes and homeowners are left unprotected," the letter said. In addition to Menendez and Booker, it was signed by Charles Schumer and Kristin Gillibrand of New York, Marco Rubio of Florida, Bill Cassidy and John Neely Kennedy of Louisiana and Cindy Hyde-Smith and Roger Wicker of Mississippi. Those states all have seen devastation from hurricane-driven flooding, including most recently Hurricane Ida. Louisiana is still cleaning up from the effects of Ida, and New Jersey is as well, where Ida sparked flash flooding in a number of North Jersey towns as the storm moved north. The Jersey Shore, meanwhile, still shows the imprint of Superstorm Sandy nine years after the hurricane made landfall in Ocean County and destroyed thousands of homes and businesses along the Jersey coast, while also causing flooding in Hoboken and the New York City subways. Superstorm Sandy caused about $70 billion in damage from Florida to Maine when it hit Oct. 29, 2012, with billions spent by the federal government to help homeowners who had flood insurance repair or rebuild primary homes that were damaged or destroyed, as well as providing temporary shelter and other assistance. Flood premiums have increased significantly since Sandy, and many towns have worked to mitigate those increases by participating in the Community Rating System, which provides for reduced rates in towns where efforts have been made to limit flood damage from future storms. The new Risk Ratings 2.0 program will drive rates far higher, however, the senators said. "The actuarial premiums that homeowners will see once Risk Rating 2.0 is fully implemented are much higher than what FEMA is rating premiums in its first year," the letter said. "This means that it could take years of compounding 18 percent increases until homeowners reach their actuarial rate." That could mean 18 percent rate increases yearly for five years, 10 years or even longer, the senators said. The letter also criticizes FEMA for downplaying the extent of how many people will be affected by the increase in rates. "We are troubled that FEMA has not publicly conveyed that 75 percent of primary residences will potentially see premium increases of 18 percent, the cap under law," the senators wrote. "This is a sharp departure from the 6 percent to 12 percent average increases that primary residence policyholders have seen in recent years." "FEMA has suggested once a policy has reached its full-risk rate, increases would stop," the senators said. "However, these estimates assume the status quo and it seems unlikely that underlying risk factors would not increase over the next decade, potentially putting policyholders on track for high increases for years to come as a result." Hundreds of homes at the Jersey Shore have been elevated since Superstorm Sandy as part of the flood risk mitigation; in many cases, homeowners were warned that if they did not elevate, they would see flood insurance premiums of $15,000 or more per year. It's not clear how that will affect premiums as elevations cost many homeowners tens of thousands of dollars. The senators also urged FEMA to halt the rollout of Risk Rating 2.0 because flood insurance companies are dealing with thousands of claims that resulted from Ida. "With NOAA predicting the rest of this hurricane season to have above-normal activity, we worry that Risk Rating 2.0 will leave flood providers overburdened by the additional responsibility of learning a new, unfamiliar and untested rating system," the letter said, in part because the new rating system was delayed and only went online Sept. 1. "We are therefore concerned agents have not yet had sufficient training to learn the new program and will therefore be unable to properly convey those changes to policyholders and provide a clear understanding of their new premiums for years to come," the senators wrote. FEMA also urged millions of policyholders were urged to call their agents to see if their premiums would decrease, but the senators said an "overwhelming majority" are finding out their costs will rise. "We are already hearing of agents choosing to stop selling (National Flood Insurance Program) policies all together due to the implementation of Risk Rating 2.0 and we have a genuine worry that if FEMA continues down this path with the implementation of Risk Rating 2.0 on the proposed timeline, the NFIP may face long-lasting reputational damage that will hurt the integrity and long-term solvency of the program," the senators said. FEMA, in a news release issued two days after the senators' letter, said it has trained nearly 21,000 insurance agents on the new ratings system and had provided more than 2.8 million premium quotes. "Now is the right time to modernize how risk is identified, priced and communicated," said David Maurstad, senior executive of the National Flood Insurance Program. "By doing so we empower policyholders to make informed decisions to protect their homes and businesses from life-changing flooding events that will strike in the months and years ahead due to climate change." Click here to get Patch email notifications, or download our app to have breaking news alerts sent right to your phone. Have a news tip? Email [email protected]