Flood Insurance Rates Set To Rise

Nov 20, 2012

The National Flood Insurance Program promises help for businesses and homeowners caught in devastating weather events like Sandy. But it’s a huge burden on taxpayers, and some critics argue that it encourages building in flood-prone areas. WNPR’s Sujata Srinivasan reports on how new rate increases for the program might affect its future.

Nearly 40% of small businesses that sustain severe flood damage in natural disasters subsequently close down. Pop’s Grocery on Main Street in Bridgeport is struggling to stay off that list.

“Last year the losses were excessive between $75,000; it took me three months to get back going. But this year it’s worse.”

That’s owner Tony Malinowski. His store is one of many small businesses impacted by the recent storm Sandy, as well as last year’s tropical storm Irene. Both times his building was damaged by several feet of flood water. But Malinowski has only basic National Flood Insurance Program, or NFIP coverage on his property.

“A lot of people can’t afford a 7,000-9,000-dollar premium for flood insurance for 500,000 dollars. When they told me that I say, “You gotta be kidding me. I say I can’t afford that premium.”

That kind of sticker shock is about to get worse. NFIP rate increases for homes and businesses used to be capped at 10 percent annually. Under a congressional reform act passed earlier this summer, premiums can now rise up to 20 percent each year. Many believe that’s a necessary measure. The program had been expected to fund itself through premiums, but is currently under $18 billion of debt. Critics say there’s reason why flood insurance in the private market is expensive and difficult to get – it’s risky. By keeping the cost of that risk much below the real market rate, the NFIP was sending the wrong signal. People thought it was okay to build in flood-prone areas and ended up rebuilding after each flood. Cynthia McHale, insurance program director at Ceres in Boston, expects the premium increases to discourage that.

“That is definitely a positive step in the right direction because it now allows the rates to start to move in a direction where they accurately reflect the amount of risk.”

But not everyone on the shoreline can – and will – want to pick up and move, unless public policy mandates otherwise. Businesses and homeowners affected by Sandy could mitigate future risk by rebuilding structures that withstand flood and gale-force winds. Seth Holmes, associate professor of architecture, University of Hartford.

“The primary things you could look at would obviously be elevating above a flood zone and then potentially even going higher by, say, building with stilts.”

Holmes says it’s also a good time to think green. Despite the steep upfront cost, there are long-term payoffs in the aftermath of a storm.

“When you think of beyond the storm, the things we’re having issues with now are loss of power and loss of energy. If you’re building a building that can in essence heat itself just by using the sun or if it can cool itself because it was actually designed not to have air-conditioning as its way of cooling, you have a building that’s going to be able to occupied longer after the storm.”

If a whole community chooses to enforce good flood protection practices by businesses and residents, the NFIP will reward that behavior, with its Community Rating System. Bob Desaulniers is FEMA insurance specialist at the Joint Field Office in Windsor, a temporary facility set up for the Federal Emergency Management Agency and the Small Business Administration in the wake of Sandy.

“If a community takes full ownership of the ordinances in the program and is actually proactive and does outreach with the developers, the real estate community, they can be eligible for discounts up to 40 percent. They could be getting a significant discount on their flood insurance if the community joined the Community Rating System.” 

Many communities in Connecticut have adapted the Community Rating System – Stamford has among the highest scores in the Northeast. Most businesses do end up turning to private flood insurance since the NFIP’s limit for commercial policies is just $500,000. But Desaulniers says small businesses – such as mom and pop concerns – should talk to their insurance agent about getting NFIP coverage.

“If the business risk is not located in a high hazard zone, they are eligible for our preferred program which have very reasonable premiums. An average storefront might be able to get flood insurance for maybe $1200, $1100, that would include both building and contents.”

In the long-term, critics say a lot more needs to be done. The optimal solution is to relocate people and property away from areas that are at high risk for severe flooding. But this would require all players to converge on a solution – government, municipalities, real estate builders, homeowners and businesses.

For WNPR, I’m Sujata Srinivasan.