More than 20,000 Virginia homeowners and businesses could see their rates for flood insurance rise up to 25 percent as part of an attempt to put the troubled National Flood Insurance Program back on sound financial footing, potentially socking many across the country with premium increases they can’t afford, according to an analysis of federal data by The Associated Press.
For many years, the federal government has offered subsidized flood insurance on homes and businesses constructed in the days before there were many rules about building close to the water. But the subsidies have been costly. Premiums collected haven’t been sufficient to cover the payouts, leaving the federal program billions of dollars in debt.
In 2012, Congress passed a law requiring approximately 1.1 million policyholders to start paying rates based on the true risk of flooding at their properties. But as public outcry over the hikes began to swell, Congress earlier this month passed legislation that was signed by President Barack Obama last Friday which pulls back some of the insurance overhaul.
Instead of facing onerous increases immediately, affected homeowners will be hit with annual premium increases as high as 18 percent year after year, until the government is collecting what it needs to pay out claims. Owners of businesses and second homes face increases of 25 percent each year.
In Virginia, about 18 percent of the state’s 114,880 policies will see premiums go up. Some 5,886 policy owners face a 25 percent increase each year, including 2,086 businesses and 3,470 vacation homes or nonprimary residences including second homes.
Meanwhile, 14,382 policy owners face up to an 18 percent increase each year. At year’s end, Virginia’s flood insurance policies represented $28.2 billion in coverage and $83.7 million in premiums paid by insured property owners.
Chesapeake homeowner Kelly McKenna’s house was built in 1964 and sits near a tidal canal that occasionally causes flooding in her backyard, shed and crawl space during high tide and hurricanes. She was slated to see her annual premiums rise from about $2,600 a year to more than $5,000 a year under the 2012 law when she got her renewal notice in October.
While finding water on her property is common, she said she’s only had one flood insurance claim in the six years that she’s lived in the house, during a 2009 nor’easter. She was already working to mitigate the flood risk when she learned her premiums would effectively be doubling.
“$2,600 a year — that’s a big chunk of my mortgage payment,” she said.
After about $3,200 of work that included raising equipment and installing new air vents in her crawl space, her premium was cut down to $733 a year.
“It turned out to be very fortuitous that I was proactive with this,” she said.
It isn’t clear yet how the Federal Emergency Management Agency, which oversees the program, will choose to implement the rate hikes. If FEMA raises rates by an average of 15 percent each year, that would mean someone now paying $1,300 annually for flood insurance, which is close to the average for a subsidized premium in a high-risk flood zone, could end up paying twice that amount in five years and $5,300 annually in 10 years.
Many homeowners also are unaware of the increase until they go to a bank to refinance their home mortgage or take out a loan against the equity in their home. The law requires the elevation of homes in a flood plain to be measured to determine risk. The cost for insurance based on that risk could cause premiums to jump by hundreds or even thousands of dollars a year for property owners in both coastal and in-land areas.
“It’s definitely a concern for a homeowner that’s on a fixed income,” said Charley Banks, the coordinator for the National Flood Insurance Program in Virginia and a flood plain management program engineer for the state Department of Conservation and Recreation. “I’m quite sympathetic to their plight. They’re kind of between the proverbial rock and a hard place.”
The bulk of homeowners and businesses facing rate increases are in Norfolk and Hampton, two communities in low-lying areas with plenty of older homes near water that were built before flood maps were drawn and have been receiving subsidized rates.
In Fairfax County, about nearly 1,600 policyholders are facing rate increases — the third-largest number of affected policies in the state. While Virginia Beach has the most policyholders in the state, only 4 percent of them are expected to see rates increase because insurance subsidies were only provided to houses built before 1975.
Scott Hunter, owner of the Virginia Beach-based company Comparity, said he’s received numerous calls from real estate agents, mortgage brokers and homeowners in Hampton Roads like McKenna looking for ways to reduce a home’s flood insurance costs as a result of the policy changes.
His company provides multiple insurance quotes at once and also recommends solutions for reducing premiums, such as elevating structures or providing additional crawl space vents, among other things. He said the new insurance rules and rates are jeopardizing numerous real estate transactions and, in some cases, making it difficult for people to afford the homes they have.
One homeowner in the Sandbridge section of Virginia Beach, which is filled with beach cottages and other vacation rental homes, is looking at insurance costs increasing from $4,000 to $16,000 a year, he said. Homes in older neighborhoods in Norfolk, Hampton and Gloucester County that are typically valued in the $175,000 to $200,000 range are also facing significant increases, he said.
“It’s putting a number of homeowners in those categories at a pretty substantial risk,” he said. “It’s pretty much any coastal market in Virginia. It’s all over the map and it just depends where they are.”
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