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Here come those rising flood rates

By Jay MacDonald · Bankrate.com
Tuesday, March 31, 2015
Posted: 6 am ET

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April Fools' Day isn't shaping up to be a laugh riot for coastal homeowners and others residing in federal flood zones.

That's because Congress has ordered the National Flood Insurance Program (NFIP) to bump up flood insurance rates beginning April 1, after delaying full implementation of the Biggert-Waters Flood Insurance Reform Act of 2012 due to caterwauling over the effect it would have on still-struggling housing markets.

Increases of up to 25 percent per year

As you may recall, Biggert-Waters requires the program to gradually phase out subsidized flood insurance for more than a million American homes, some of which have enjoyed low grandfathered rates for decades.

Beginning Wednesday, some of those rates are expected to increase as much as 25 percent each year until they reach actuarially sound levels that reflect the homes' true risks to the NFIP.

What's the hurry? For starters, the federal flood program, which is managed by the Federal Emergency Management Agency and taxpayer-backed by the U.S. Treasury, is currently $24 billion in the red, thanks in large part to losses incurred by hurricanes Katrina and Sandy.

The Government Accounting Office says FEMA's Treasury tab is already so great that the best it can do is make payments on its interest. According to the GAO, the flood program collected about $4 billion in 2013 to insure homes worth nearly $1.5 trillion.

2nd homes face steepest rate hikes

But perhaps equally ominous for the NFIP is the probability of rising sea levels due to climate change -- or as it's known here in Florida, the apocalypse-of-which-we-dare-not-speaketh. The latest report from the Union of Concerned Scientists, which analyzed high-tide flooding in 52 U.S. cities, predicts that most of them will see a three-fold increase in high-tide flooding in the next 15 years and a 10-fold increase within 30 years, when "nuisance" flooding could become a weekly event.

Roughly 800,000 of the 1 million homes facing higher rates are homeowner-occupied year-round, while 200,000 are second homes. In addition, about 100,000 farm buildings and churches will face rate hikes in the near future.

Primary homeowners will likely face a 10 percent increase on average this year, plus an additional $25 annual surcharge to help pay down FEMA's Treasury debt. Owners of second homes in flood zones will see an 18 percent increase and a $250 annual surcharge.

Save on premiums with stilts?

What can you do? Homeowners may be able to lower their flood insurance premium by elevating their homes with stilts or stone embankments that raise their house to a less vulnerable level, although the $30,000 average cost to do so may discourage most.

Shannon Hulst Jarbeau, assistant director of the nonprofit Wetlands Watch consumer group in Norfolk, Virginia, says rates have to rise as sure as flood waters are expected to.

"Realistically, it's not great for people," she told The Washington Post. "These reforms need to happen. The rate increases drive an interest in adaptation to sea-level rise. It makes people start to understand the value of reducing flood risk because it hits them right in their pockets."

And that's no April Fools' joke.

Follow me on Twitter: @omnisaurus

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Veteran contributing editor Jay MacDonald is co-author of "Future Millionaires' Guidebook."

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