Flood zone changes soak state residents with higher insurance costs

An adjustment of federal flood insurance rates is “radically” increasing costs for property owners as new maps project rare storm winds of over 200 miles per hour and three-foot waves in Marshfield Center, which is about five miles inland, according to Rep. James Cantwell.

“They went so radically to an extreme and in such a short amount of time,” Representative Cantwell said, after testifying at the Committee on Financial Services. He complained that the new actuarial calculation will increase flood insurance costs “25 percent a year for the next four to six years for people who are just, they’re going to get priced out of their homes.”

An increase in flood insurance rates drives down property values, creating an additional threat of foreclosure, said a panel of homeowners, bankers and real estate professionals who Cantwell assembled to testify before the state legislative panel.

“The sellers are forced to make deductions in their prices,” said Kim Moccia, a Radius Financial Group mortgage consultant. “My fear is that we’re going to see an influx of foreclosures.”

Mr. Cantwell has proposed a bill (H 865) that would direct the commissioner of insurance to regularly investigate how the National Flood Insurance Program rates are set and “make suggestions for changes to ensure the rates are not excessive.”

“We don’t do flood insurance, quite frankly, because it’s not the purview of our committee,” said House committee chairman Michael Costello, who suggested the proponents would be able to more speedily achieve their goals by lobbying Gov. Deval Patrick to call for such a study. “How much will it help?” he said. “I don’t know. Is it more symbolic than anything? Maybe.”

Mr. Cantwell, who will attend an oversight hearing Wednesday by the U.S. Senate Committee on Banking, Housing and Urban Affairs, said the Biggert-Waters Flood Insurance Reform Act of 2012 requires the Federal Emergency Management Agency, which draws the flood maps, to study the financial impacts of the new rates.

“FEMA hasn’t done the study because of sequestration,” Mr. Cantwell said.

In an online fact sheet, FEMA said the national flood program, created in 1968, is in need of financial stability.

“Flooding has been, and continues to be, a serious risk in the United States, so serious that most insurance companies have specifically excluded flood damage from homeowners insurance,” FEMA wrote. “Over the years, the costs and consequences of flooding have continued to increase. For the NFIP to remain sustainable, its premium structure must reflect the true risks and costs of flooding. This is a primary driver for many of the changes required under the law.”

The new maps, which have been created on the North Shore and South Shore, will be done throughout the state, pulling people into the redrawn flood zone where a home’s basement can be a tremendous liability, according to Doris Crary, of Marshfield.

“These people are looking at policies of $20,000 to $30,000. They were fully compliant structures that were built with all of the laws of the town and the state and the building codes; and then they’re moved in afterwards, which is why we believe the basements should not count, and I don’t believe these properties should be even added into the special flood hazard area,” Ms. Crary told reporters.

Robert Tommasino, who is general counsel at the Fair Plan, a legislatively mandated partnership of insurers that provides a homeowner’s insurance refuge of last resort for property owners but does not provide flood coverage, said he is unaware of how the federal government calculates the rates.

“I’m not sure if they’re trying to make up losses that they’ve suffered in their program for the last 30 years all in one year or two years, rather than, say, if we have losses – if we have a tremendously bad year and we lose $200 million in that year, we can’t make it up in one or two years,” Mr. Tommasino said. “I don’t know what FEMA is doing, to be honest, and whether or not they’re overshooting to be able to kind of broaden the number of policyholders and therefore be able to collect the premium.”

Representative Cantwell said the surplus from the National Flood Insurance Program is annually deposited into the federal government’s general fund, leaving the fund vulnerable when it is required to make massive payouts.

“All the money that goes into this fund should stay in the fund,” he said, and added that only 60 percent of those who are deemed to require the insurance actually pay for it.

Many New Yorkers and New Jersey residents have spent much of the past 11 months digging out from tropical storm Sandy, and reports from Colorado show areas awash with devastating floods, and Mr. Cantwell said the country as a whole should be on the hook for those costs, rather than only flood insurance policyholders.

“Those people in Colorado, I would bet most of them aren’t going to have flood insurance, because they just weren’t predicting this would be happening. So, should the federal government help them? Yes, they should,” said the representative, who said he is not financially affected by the rate change. “That’s the role of the federal government, but you can’t then turn around and expect people who have been playing by the rules, who have their insurance, to shoulder the burden.”

Representative Cantwell said Haddad’s Ocean Café in the Marshfield village of Brant Rock had recently raised its foundation in an effort to limit its flood exposure, but the new maps have determined the height increase is insufficient.

“Now they’re receiving notice that they’re three feet below where they should be,” Mr. Cantwell said.