While this coming Oct. 1 is high in media consciousness as the date of the implementation of the Affordable Care Act, it’s also a milestone date for significant changes in federal flood insurance rules, as a result of the appropriately eponymous Biggert-Waters Flood Insurance Reform Act of 2012. The Biggert-Waters law extends the National Flood Insurance Program (NFIP) to 2017 but at the cost of significant program reform, much of it to ensure that flood insurance premiums more accurately reflect real flooding risk.
Nationally, most flood insurance is covered by the federal government, with 5,554,044 policies in effect as of June 30 of this year. In Massachusetts, a total of 59,975 policies are in effect, according to the Federal Emergency Management Agency (FEMA). Private insurers offer very little flood insurance except to existing policyholders who already do other lines of business with them, and the most likely to do so are only the biggest carriers.
Components of the Biggert-Waters Act have been phased in since July 2012. Last year, the changes dealt with time- and region-specific modifications to existing law, few of which affected Massachusetts. But as of Jan. 1 of this year, NFIP residential-property policyholders who receive premium subsidies will see their premium rates increasing 25 percent each year until the premiums reflect full risk rates.
Scitutate homeowners are already aware of the changes. New maps from FEMA have added about 500 homes to the flood zone, mostly along the coast. The town is the state’s leading recipient of federally-backed insurance payments according to statistics from FEMA. In a town meeting held the first week of August, one of the selectmen sought a meeting with FEMA to address the changes and reportedly may hire an engineer to dispute the alterations, according to The Boston Globe. A 90-day appeal period for Scituate homeowners runs to Oct. 17.
Three More Categories
Come Oct. 1, three additional categories of policyholders will fall under the 25 percent annual premium increase rule. They are: Owners of business properties who have been receiving subsidized NFIP premiums; owners of “severe repetitive loss” properties consisting of one to four residences; and owners of any property that has incurred flood related damages in which the cumulative amounts of claim payments exceeded the fair market value of the property.
That last part is a key policy decision on the part of the feds. It amounts to a “stop-loss” of sorts. The NFIP property buyback program, which targets flood-prone structures to take off the market and convert to open space, already caps reimbursement to 75 percent of fair market value of the property. Now, it’s going to evaluate the cost of repeated rebuilding, and when those costs exceed fair market value, it will Just Say No.
Consider New England’s experience with flooding over the last two years. Hurricane Irene ravaged Vermont’s hills and valleys in 2011, in addition to flooding certain areas of New Jersey. Hurricane Sandy didn’t affect Massachusetts so much, but the experiences of New Jersey and New York have spelled out the economic consequences of a major storm impacting high-density, high-cost areas. We could be next.
Bob Ansin is CEO of the Massachusetts Innovation Center (MIC), headquartered in Lawrence. Ansin has a well-deserved reputation as a builder/renovator of sustainable building projects. A few years ago during a flood (and Lawrence has had two 100-year floods within six months of each other), an Ansin adaptive reuse project in Lawrence, the Monarch Lofts, got a visit from the Merrimac River, which took six-foot occupancy in the basement in part due to pipes dating from the building’s 1906 construction. They’d apparently been designed to empty effluent into the river, but played a reverse role when the waters rose.
Ansin recalls that because renovations were then in progress, engineers could quickly come up with a Plan B to address the flooding. Drawing from experience, he says that flood mitigation efforts are often location specific, and that property owners can’t always easily tell where water will build up and where it will try to exit.
Richard Zingarelli, NFIP coordinator for Massachusetts, says that currently, all the state’s coastal counties are currently in the process of getting updated NFIP maps. Most will receive preliminary maps effective next summer, though Suffolk County’s will come closer to yearend 2014.
Massachusetts is not currently considering a buyout program on the scale of that implemented by New Jersey after Hurricane Sandy. Should a bad storm hit the Bay State, applications must be submitted through the community, not the affected property owner. FEMA considers the state as the applicant, with cities and towns being the sub-applicants. Buyouts through FEMA are capped at 75 percent of fair market value.
“The intent of the buyouts is that they would be saving money that would normally be paid out for future damage,” says Zingarelli.
Email: coneill@thewarrengroup.com
