Higher flood insurance rates could swamp vacation homesFederal legislation targets artificially low premiums for policies
Posted by the Asbury Park Press on 07/23/06
BY TODD B. BATES
ENVIRONMENTAL WRITER
If you own a second home at the Jersey Shore or in other flood-prone areas, the cost of flood insurance may eventually rise dramatically.
"I think that's really bad," said Mary L. O'Brien, who has flood insurance for a second home in Point Pleasant Beach, 1 1/2 blocks from the beach.
A nor'easter in the late 1990s flooded her basement, and "we're sealing up the house and . . . taking a little more care in keeping the house water-tight," said O'Brien, 49, who also lives in New York City.
Last month, the House of Representatives passed legislation (H.R. 4973) that would end artificially low rates for flood insurance for some property owners to help pay off the National Flood Insurance Program's debt of more than $20 billion. The Senate is considering a similar bill (S-3589).
The Federal Emergency Management Agency program was forced to borrow from the federal treasury after hurricanes Katrina, Rita, Wilma and other events last year led to a record number of flood insurance claims and payments, said Butch Kinerney, a FEMA spokesman.
The House-passed Flood Insurance Reform and Modernization Act of 2006 would make major changes to the flood insurance program.
About 450,000 vacation homes, second homes and commercial properties are subsidized and not paying sound rates for flood insurance, according to the bill.
In New Jersey, rates could increase for more than 40,000 homes, Kinerney said.
It now costs about $500 a year for a $100,000 flood insurance policy, according to FEMA's Web site. People who live in low- to moderate-risk areas and are eligible for a Preferred Risk Policy may pay as low as $112 a year, including coverage of their property's contents.
Under the House bill, subsidies for affected properties would be phased out, and premiums would increase 15 percent a year compared with the current 10 percent limit annually, the Library of Congress Web site says.
Under the Senate bill, rates would rise 25 percent a year, and subsidies would end for secondary residences and "severe repetitive loss" properties, or those with at least four losses in 10 years, among other provisions, according to the Web site and Kinerney.
Premiums would eventually cost up to 81 percent more if the subsidy ends for secondary properties, according to figures provided by Kinerney.
Under the House bill, the maximum flood insurance coverage for a residential property would increase from $250,000 to $335,000 for a single-family dwelling; from $100,000 to $135,000 for contents; and from $500,000 to $670,000 for the structure and related contents of a nonresidential property, including churches, according to the Library of Congress Web site.
The Bush administration supports many of the provisions in the bill, according to a statement by the White House Office of Management and Budget posted on the Web last month.
But the administration opposes provisions that would increase the scope of coverage offered by the flood insurance program, the statement says.
"Total exposure for the flood insurance program is quickly approaching $1 trillion, and the program is currently facing a potential debt burden of $22 billion or more," it says.
Increasing coverage amounts "could encourage expensive development in high-risk areas," it says.
However, higher premiums would cause some property owners to drop flood insurance or reduce the amount of coverage, according to a letter from the Congressional Budget Office on the Web.
As a result, Congress might face greater pressure to approve money for disaster relief if a major flood occurs, the letter says.
FEMA subsidizes policies for structures built before flood maps were introduced, which took place mostly in the late 1970s and early 1980s, Kinerney said. Those properties generally were grandfathered in at a much lower premium rate.
Normally, the flood insurance program might get 8,000 to 10,000 claims a year, Kinerney said.
But it received about 250,000 claims last year, the most ever by far, he said.
Todd B. Bates: (732) 643-4237 or tbates@app.com