The cost of FEMA flood insurance policies is increasing, but taxpayers are helping to pay the bill

The cost of FEMA flood insurance policies is increasing, but taxpayers are helping to pay the bill ...

Many homeowners have a life on the water as if it were their own backyard until their property floods.

After Superstorm Sandy devastated New Jersey, some homeowners moved out to avoid the risk of severe flooding, but many stayed and rebuilt. And construction in flood-prone areas hasnt fallen behind, even as severe storms and flooding become more common because of climate change.

Flood insurance policies permit people to stay in areas that are at risk of being buried under water someday.

For decades, taxpayers have been subsidizing flood insurance rates, but new premium calculations by FEMA will adjust rates to better reflect the true risk of flood-prone homes. Costs will be higher for 79 percent of insured homes in New Jersey, but it will take years before owners of the state's most vulnerable properties pay the full premiums.

The average cost of a flood insurance policy in New Jersey is $949, which is often less than an annual auto insurance plan. The national flood insurance program (NFIP), which is run by the Federal Emergency Management Agency (FEMA), has more than $20 billion in debt due to the low premiums coupled with the high payouts. In 2017, another $16 billion in debt was forgiven.

The program operates on approximately 217,000 properties in New Jersey and 5 million throughout the country. Its paid out an average of $47,700 per claim in New Jersey in the past 10 years.

Its difficult to rationalize taxpayer support for people who live in flood zones, said Peter Van Doren, cato institute senior fellow.

He stated thats not how the program, which began in 1968, was supposed to operate.

Van Doren cited a 2015 report from the National Research Council (NRC) that stated that the expectation was that, over time, properties receiving subsidized premiums would be lost to floods and storms.

But, that didnt happen. Congress tried to reform flood insurance in 2012, but then Sandy hit.

FEMA released new flood maps indicating increased risk and thousands of homeowners were subjected to significant premium increases, Van Doren said, noting that Congress then retreated from earlier reforms.

A START AT REFORM IS A CRITICAL STAND.

Whether a policy covers tens of millions of dollars of real estate or merely solitary bungalows, the cost has remained the same, causing lower-cost homes to pay the equivalent amount to mansion-owners.

Thats slowly changing with the new Risk Rating 2.0 flood insurance price assessment. Instead of focusing on what flood zone a property is in and whether he or she is elevated, rates will now be determined based on rebuilding costs and if s/he is at risk of flood damage, according to FEMA, stating that the move will make pricing more equitable.

Jerry Theodorou, director of insurance for the R Street Institute, a nonprofit public policy research organization, said the changes made will make the program more economically viable so that it will not be imposed on the taxpayer. We consider it unjust that ordinary taxpayers are subsidizing the cost of flood insurance for people who can afford it.

He stated that he asked the national flood insurance program's management how long it will take for expensive and riskier homes to pay the actuarially correct cost given that premiums, by law, may at most be raised 18% a year.

The answer was 10 years or more, he added.

The best way to get to economic viability would be to have the private sector take control, according to Theodorou.

The government doesnt have to be involved in the business of flood insurance, he said. The bad news is that this year, theyre going to lose more money, but gradually youll start to see the rates approach actuarily sound levels, and thats a good thing.

HOW MUCH DOES N.J. PAY?

The new premium calculation went into effect earlier this month for new policies, and it will begin in April for current policyholders, who make up about 6% of New Jerseys more than 3.6 million housing units, according to Census data. Some rates will go up while others will drop.

An analysis of FEMA data shows that Camden, Morris, and Passaic Counties are among the top 125 counties in the nation that will see the highest rate increases of $1,200 a year or more in just the first year under the new system, according to Nick VinZant, based in QuoteWizard, an online mortgage firm's senior research analyst.

Heres a look at how many policies in New Jersey will see their premiums rise, depending on the zip code.

79% of state spending will increase when the new rates take effect. About two-thirds, or 137,075, of the 217,200 New Jersey properties with policies, will see increases of $120 or less per year. Ten percent, or 22,426, will see increases of between $120 and $240 per year. Five percent, or 11,364, will see the costs rise by $240 per year or more.

Were still subsidizing some of these risky homes, but this is the start of a new trend in flood insurance," VinZant said. The beachfront mansions are going to be paying a greater and greater share in the future, said Michael Smith, director of the Miami Beach Association. Riskier properties will be paying their fair share.

Twenty-one percent of properties will see their costs decrease.

According to the FEMA data, the Salem (47%), Cumberland (42%), Essex (38%), and Union (37%) Counties have the highest number of policies whose costs will decrease.

The largest percentage of premium increases will be seen in Hudson (87%), Ocean (83%), Hunterdon (88%), and Burlington (81%) Counties.

It will take many years for some homes to reach what FEMA calls a full risk rate, or the full amount incurred under the new formula. Because by law, rates cant rise more than 18% per year.

Sen. Bob Menendez, who said he intends to reintroduce legislation to lower the annual increase to 9 percent, has said that the current increases will compound quickly.

Only 50% of the primary residences will reach their full rate after five years, 40% will take five to 10 years and 10% will last longer, according to his office.

Its easy to see how the increases can reach thousands of dollars, it added. In the first year, 316 policyholders in New Jersey, four of which are in Paterson with a median household income of $41,000 yearly, will see an annual increase of at least $1,200 under Risk Rating 2.0.

CLIMATE CHANGE IMPROVES THE EFFECT OF CLIMATE INTERRUPTION.

People who live in flood-prone areas will continue to roll the dice because of climate change, according to VinZant.

Flood insurance used to be about a 100-year flood, but now were seeing these 100 year floods every 10, five, or even every year, VinZant said.

According to him, new studies show that the number of people who should have flood insurance or who are going to need it in most places is only going down, in part because some of FEMAs maps are 40, 50 years old, and vastly outdated.

According to The First Street Foundation, a nonprofit that assesses climate change risks, some 6 million homes in the nation are at risk of flooding, but don't appear on FEMA's maps.

It claims that 445,251 properties in New Jersey or 13% of the state's houses - have a greater than 6% chance of being severely affected by flooding over the next 30 years. It also includes an online tool that displays flood risks by municipality.

FEMA, according to the group, is still not incorporating climate data into its estimate of flood risk.

While risk ratings will be updated, the failure to include climate impacts predicted risks means the program could continue to rest on shaking financial foundations into the future as climate change increases flood risks, First Street Foundation stated.

Blue Acres, a program that buys out owners of at-risk properties, could be able to provide if the solution is implemented, as Gov. Phil Murphy did after Hurricane Ida, which caused widespread flooding and killed 30 people.

Theres no amount of mitigation we can put in place thatll keep (at-risk properties) from the reality of the intensity and frequency of storms, Murphy said.

Shawn LaTourette, the states Department of Environmental Protection (DEP) commissioner, said in September that the federal government has increased funding for the Blue Acres initiative.

Now we have that greater ability, and well be utilizing that, no question, he added.

The program has been in place since the 1990s, but it wasnt widely used until after Superstorm Sandy. It has offered to buy more than 1,100 houses since 2013, but only 830 homeowners have accepted.

For a community to accept its risk and effectively tell itself that we must uproot ourselves and find semblance of rebirth, thats incredibly daunting cultural undertaking, he added.

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KPriceMueller@NJAdvanceMedia.com is available to contact her at KPriceMuleller at NJAAdvANCEMedia@nj.gov.

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