Flood insurance hikes arriving at a waterfront near you

Fairfield – Carolyn Kamlet’s 1950s tidy, yellow, cottage-like home, a block or so from Long Island Sound here, sits poised for summer with a pair of folded beach chairs on the front porch.

But those chairs might not be used anytime soon. Kamlet and her husband plan to elevate their house by about six feet, beginning in the next month or so.

“We bought the house in July 2011,” Kamlet said from her warm, appropriately pale sea green dining area. “So we went through Irene the first year and Sandy the second year.”

Sandy filled the crawl space with water up to the bottom of the first floor destroying the furnace, hot water heater, air conditioner and washer and dryer. Even with the decontamination needed, the damage was far less than the 50 percent threshold that would have required the house to be elevated.

The availability of a grant and loans to pay the more than $170,000 it will cost to lift the house, and the prospect of peace of mind, were factors in their decision to elevate anyway.

“The hurricane season is coming, and we don’t ever want to live through that again,” she said.

But increases in flood insurance premiums, which were $1,700 a year when they bought the house and $2,300 as of last July’s bill, helped seal the Kamlets decision.

“The flood insurance is a huge of part of it because we know that it’s going to go up and up and up and up and up,” she said.

The first of those “ups” began on April 1.

Just over a year after homeowners; shoreline politicians nationwide, including Connecticut’s; and a panicked real estate industry fought successfully to roll back dramatic scheduled increases in National Flood Insurance Program rates, most of them are back (see a summary here) in only slightly modified form. As policies renew, homeowners are likely to face a new round of sticker shock, their penalty for living in flood zones, as the Kamlets do, and their required contribution to bail out a system that has been under water itself for years.

By elevating their homes to Federal Emergency Management Agency standards or better, the Kamlets and many others in their Penfield Beach neighborhood estimate their flood insurance bill will drop from as much as $3,000 a year to $300 to $400.

The rates will go up by certain percentages in accordance with the new flood insurance law — but starting from a lower point, they will ultimately be far lower than they might have been.

Who’s up, who’s up a lot, who’s down (for now)

What kicked in on April 1 is called the Homeowner Flood Insurance Affordability Act (HFIAA), signed into law in 2014. It followed another law passed in 2012 before storm Sandy hit. Both are attempting to correct a fundamental flaw, baked into the flood insurance program when it was created in 1968, that gave artificially low, subsidized rates to homes built before that year.

Those low rates, combined with big insurance payouts after hurricanes Andrew in 1992 and Katrina in 2005, left the flood insurance program in deep debt — now estimated in the wake of Irene and Sandy at about $24 billion. The 2012 law, known as Biggert-Waters, as well as HFIAA, try to get most shoreline properties up to flood insurance rates that better reflect a home’s true risk, taking into account expected increases in severe weather and sea-level rise driven by climate change.

While HFIAA, does that in less drastic fashion than Biggert-Waters and lets some properties off the hook entirely, Connecticut is still hit hard because of its old housing stock. Owners of about 45 percent of those properties that have flood insurance pay a subsidized rate, more than twice the national average.

Making matters even more expensive in Connecticut, FEMA in 2013 completed recalibrating shoreline flood zones here — part of a nationwide upgrade that coincidentally hit the state as the storms barreled through and the flood insurance changes were underway. It put thousands of additional properties into flood zones or moved them to riskier ones.

“I haven’t had a lot of people beating down my door,” said Diane Ifkovic, an environmental analyst with the Connecticut Department of Energy and Environmental Protection and the state’s flood insurance coordinator, who expects complaints to start coming in gradually as policies come up for renewal. She figures people have forgotten that increases were only put off for a while, not forever. “What I have had is a lot of people calling — ‘I’m going sell my house.’ They want to see if they can get out of the mapping.”

Generally subsidized flood insurance rates are going up at least five percent, but no more than 15 percent for primary residences, 18 percent for non-primary. Both rate increase caps are higher than they used to be, but lower than in Biggert-Waters. Rates for homes built after 1968 will go up at least nine percent.

But new fees make those percentages a bit disingenuous. An assessment of 10 percent to 15 percent of a policy’s cost will go to a reserve fund for the flood insurance program to use when payouts exceed premium collections. And a new $25 annual surcharge for primary residences and $250 for non-primary ones and other buildings have been added to make up for the much slower elimination of subsidies in HFIAA than what had been planned in Biggert-Waters.

“You do it again, do it again, do it again — you could double your premium in a very short time,” Ifkovic said. “If it’s a seasonal house, sitting on ground, not mitigated, it doesn’t take long to double or triple that number.”

But the prospect of higher rates — apparent for more than a year, may have had an unintended consequence — fewer Connecticut residences are now covered by flood insurance policies than a little over a year ago, despite the fact that more residences are in flood zones.

The meaning of managing risk

Flood insurance is only required if you have any kind of federally backed loan – usually a mortgage, but also a home equity line of credit — or you used FEMA funds to rebuild from a storm. In Connecticut, many of those old, shoreline homes have been in families for generations and have long since had the loans on them paid off.

George Bradner, property and casualty division director in the Connecticut Insurance Department and co-chair of the Long-Term Recovery Task Force created after the storms, said Connecticut has always had one of the lowest flood insurance rates — 20 to 23 percent of eligible properties. And he wasn’t surprised the number of policies had dropped.

“After you have events like Irene or Sandy, people tend to want to go out and get flood insurance,” he said. But if there’s no storm for awhile, “They say ‘it hasn’t happened to me. Why do I need this? I’m paying a lot of money; I don’t see the need. I’ll take the chance.’”

There is also some concern that the milder provisions of HFIAA are working as a disincentive for shoreline homeowners to take the precarious positions of their homes more seriously. For instance, certain types of low rates can be grandfathered. Under Biggert-Waters, a home sale was to have triggered an instant increase to full actuarial rates. That was the provision the real estate industry had fought, claiming it would devastate shoreline home sales.

But under HFIAA, the grandfathered and subsidized rates can now be passed on to a new owner if the house is sold, meaning there might be less reason to elevate the home or take other precautions.

Ifkovic said such provisions defeat the purpose of flood insurance reform. “It kicks the can down the road,” she said. “Absolutely, 100 percent.”

Bradner would like the federal government to help get more people insured. “After seeing Irene and Sandy — people need to purchase flood insurance,” he said. “People need to educate themselves as to what their risk is and what is their tolerance for that risk.”

Rob Moore, senior policy analyst with the Natural Resources Defense Council water program and co-author of a report that suggests further flood insurance reforms, said the biggest problem with the flood insurance program is that it’s viewed as a disaster assistance program.

“Insurance is not just about assistance, it’s about disaster management as well,” he said. “A for-profit insurance company views its job as much about minimizing risk as covering risk. If flood insurance was more aimed at flood risk management, we’d probably be talking about a different approach.”

That, he said, should include ways to fund getting homes off the coast entirely and making flood insurance less about affordability and pricing, which is what drove the debate that resulted in the less onerous rates of the HFIAA.

“If you make it cheap again, it doesn’t solve the problem,” he said. And he thinks elevating houses as a means to lower rates for homeowners causes another set of problems.

“They’re predicated on the assumption that flood risk is static — that the risk at the time you elevate will be the same flood risk you face 20 years from now,” Moore said. “By elevating property on the coast you haven’t protected your home from future floods, you just put it off.”

In Connecticut, the flood insurance issue is playing out in a crush of home elevations anyway.

Up in the air

Dick Dmochowski’s 1960 split-level house is down the block from Carolyn Kamlet’s. On the same chilly day it sits high on big blue girders, its front steps separated from the front door by several feet. Workmen are under and around the house securing and removing this and that.

Dmochowski, camera dangling from his neck, is braving the unseasonable elements. “Somebody’s got to keep an eye on these guys,” he jokes.

Dmochowski had flood insurance when he first bought his home in 2000 because he had a mortgage. But when he paid it off a few years later, he canceled the insurance, then around $1,400. He reasoned that since the house had never been flooded, the money would do better in a bank. His electrical box was already elevated and even if the boiler on the basement floor flooded, he’d still be ahead of the game paying out of pocket.

“Then Sandy came, flooded the basement, wiped out the electrical and the boiler and the back room,” he said. “So we were no longer ahead of the game by not paying flood insurance premiums.”

The same grant the Kamlets are using, the federal Hazard Mitigation Grant Program that pays 75 percent of elevation costs, convinced him raising the house was the way to go, even though it means he now has to have flood insurance.

“We said, ‘how can we NOT do this,’” Dmochowski explained.

In 10 years, when he expects to sell the house, Dmochowski figures its value will be enhanced by the elevation. “And we have peace of mind,” he said.

The state Emergency Management and Homeland Security office, which administers the Hazard Mitigation Grant Program for FEMA, reports that more than 50 home elevations related to Sandy have been funded statewide so far, with nearly another 40 in progress.

The low-interest loan program the Kamlets are using to help them pay for costs not covered by the grant is a state program called Shore Up Connecticut. Out of about 220 inquiries statewide, three loans have been approved and 10 applications are pending.

Jim Wendt, Fairfield’s assistant planning director, said some 60 homes are being elevated in the wake of Sandy and probably twice as many are being torn down for rebuilding to FEMA flood zone specifications, some by builders who are offering cash to purchase un-elevated homes for rock-bottom prices.

“The vast majority are driven less by flooding in their homes than are driven by what lies ahead in terms of future cost of flood insurance,” Wendt said.

Instead of fighting to make sure flood damage is under the 50 percent threshold that requires elevation, residents are now pushing for an above 50 percent assessment, Wendt said. “It’s now completely flipped — ‘how do you help me elevate?’” he said. “Their great fear is that they’re not going to be able to sell the house unless it’s FEMA compliant.”

But real estate agents and even architects designing elevations say many properties look terrible hoisted in the air, and they change the character of neighborhoods. Both could hurt the home’s value even if they are FEMA compliant.

“Everybody loved their charming little house, but most of the houses in this neighborhood are small,” said Mary Strohm the architectural designer working on the Kamlet’s home and who also lives nearby. “There’s a certain amount of heartache involved because it changes the nature of the house.”

Strohm has been in her 1920s home for 26 years. She now pays $2,800 annually for flood insurance. “I’ve never had a flood claim; never had water in the basement,” she said. But elevate her own home? “Absolutely not,” she said.

As for Carolyn Kamlet, she said she talked to a neighbor the other day who said “you know it’s not going to happen again in another 25, 30 years.”

“Well I don’t know; I hope not. I hope we go through all of this, and it never happens again,” Kamlet said.

But she said she and her husband “made a decision that we weren’t going to live the rest of our lives wondering whether there was going be another storm.”