For many people, retiring to a house on the beach is the American dream. Residents of Boca Grande enjoy boating and tarpon fishing, white sugar-sand beaches and for decades, subsidized federal flood insurance just in case a hurricane comes ashore.
Many Florida residents will soon be required to pay more for flood insurance due to what FEMA calls the “2.0 Risk Rating” program. The new system considers for the first time the size of a home and its distance from flood sources to calculate coverage rates.
FEMA’s National Flood Insurance Program, which was created by Congress in 1968, provides flood coverage that isn’t often offered by private insurers. While the program is funded by premiums from policyholders, FEMA can borrow money from the federal treasury to cover claims.
Risk Rating 2.0 is part of a plan to bring the NFIP out of its $20 billion debt caused by paying out more than it collects and will strip its subsidies in a move to adapt to climate change marked by the increase of catastrophic hurricanes and rising sea levels.
The new program has left many homeowners and those in the insurance industry in a state of confusion.
“This flood thing’s got me confused,” said Janine Livesey, an insurance agent with the Key Agency. “I’m still on the phone with my underwriter daily because of the confusion.”
And Janine is not alone.
The FEMA program rate changes, which cover homes around the country, will be most severely felt in coastal communities and is an attempt to adapt to climate change. The new plan will force Americans to pay something closer to the real cost of their flood risk, which is rising as the planet warms. Federal officials say the goal is fairness along with getting homeowners to understand the risk they face when moving into flood zones.
With the new rate calculations, homeowners in coastal communities in Florida will see a rate increase of ten times the current rate. For roughly 25,000 homeowners nationwide, additional costs could reach as high as $1,200. Approximately half of the 25,000 homes are in Florida, many along with the high-risk barrier islands on the west coast of Florida, including Boca Grande.
“My marketing rep said that she’s received more calls from Charlotte County agents than anywhere,” said Nat Italiano, Vice President and Producer of Italiano Insurance. “And that almost every rate is more expensive up there. Charlotte County is going to take it pretty hard, and Boca Grande is, too.”
However, Italiano says that there are some ways of lowering costs and receiving discounts. “We do write a lot of policies with Lloyds of London, so we can move people to the private market if we have to. There is a base rate and then there are discounts available. Let’s take, for example, most of the island used to be in a ten-foot flood zone, and if the house was built up 14 feet above sea level, which a lot of houses on stilts are. Before this new program, your machinery equipment or air conditioner system only had to be at the base level of 10 feet. Now they don’t penalize you if it is, but if it’s at least as high as the first living floor, that’s a discount.”
For Livesey, the rate increase hits close to home. “Even for the Preferred zones like where I live, I live off the island and I’m in a Preferred X zone. I just got my flood renewal, and it was $493.00. I quoted it after October 1st because this is my renewal, but renewals don’t hit until April 2022. If the new rating is not beneficial, then the renewal will go up no more than 18% per year until they reach that actual rate which when I put a Preferred X zone now for my house, it was $2400.”
Because federal law prevents FEMA from raising flood insurance rates by more than 18 percent a year, it could take up to 20 years before some current homeowners are charged their full rates under the new system.
Not every homeowner will see a rise in rates. Florida FEMA data claims that 20 percent of plans will decrease for those who were overpaying for their risk of flood. Approximately 70 percent of plans will increase by no more than $120 a year; 8 percent will climb no more than $240 a year, and just 4 percent will grow by more than $240 a year.
“We rated about 15 policies in Boca Grande,” explained Italiano. “One was less than it should have been. One new business policy was less than it should have been, but the rest have all been higher.”
For cash buyers who recently purchased their home this year, they will not be mandated to have flood insurance. Some insurance companies require it, but very few, and many will accept a waiver that says that the homeowner has rejected the coverage. Homeowners with federally backed mortgages are legally required to carry flood insurance.
The worry is that as insurance costs rise, home values will fall as people who can’t afford rising insurance costs will be forced to move.
Lawmakers, including Charlie Crist, have responded to the change. 38 members of Congress signed a letter urging House Speaker Nancy Pelosi to block the change.
“We are concerned about the burden of potential double-digit rate hikes on our constituents by FEMA’s untested pricing methodology,” said the letter and called the burden, “too much to bear.”
During a time when most issues fall along partisan lines, views on flood insurance are less a matter of political ideology than of geography.
The growing threat of climate change may make FEMA’s rate increases permanent and any intervention by congress less than successful.