On the 9th anniversary of superstorm Sandy, a plan to reform flood insurance

Annual flood insurance rate increases would be capped at 9% under a bipartisan bill to reform the National Flood Insurance Program expected to be introduced Friday, the ninth anniversary of superstorm Sandy. 

The National Flood Insurance Reauthorization Act of 2021 is being introduced by U.S. Sen. Bob Menendez, D-N.J., where the 2012 storm damaged or destroyed more than 70,000 homes and caused billions of dollars in damage statewide. 

It marks the senator's latest attempt to craft a long-term renewal of the flood insurance program that would stress mitigation and limit what he termed "rate shock," the sharply rising premiums that he said many policyholders will feel under a new federal method of calculating flood risk. 

The Federal Emergency Management Agency's Risk Rating 2.0 could lead to rate hikes of 5% to 18% a year — or 25% a year for vacation homes — until the cost is in line with what FEMA says is the actual flood risk and value  of each individual property.

FEMA manages the flood insurance program; about 217,200 homes in New Jersey are covered by flood insurance policies. 

The average premium in the state is about $1,000 a year. 

Homeowners living in flood zones are required to have flood insurance if they have a mortgage.

Risk Rating 2.0 went into effect for new homebuyers on Oct. 1, and will impact current flood insurance policyholders starting April 1, when polices are renewed for the year.

"I rang the alarm bells before they put it out," Menendez said of Risk Rating 2.0. "By having rate shock, you create a group of people who are not going to be able to afford it."

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He said 77% of New Jersey property owners will see increases in their flood premiums in the first year under the new system. 

Menendez said soaring rates will lead more residents of flood-prone areas to drop flood insurance coverage, making policies even more expensive for those who remain. 

The senator noted that the nonpartisan Congressional Budget Office  has estimated that 900,000 property owners will cancel flood policies as Risk Rating 2.0 is implemented. 

That's nearly 20% of the estimated 5 million U.S. flood insurance policies.

Menendez' bill would:

• Reauthorize the National Flood Insurance Program for five years, through September 2025;
• Provide vouchers for low- and middle-income homeowners and renters, if their flood insurance payments become too expensive for them to afford;
• Freeze interest payments on the flood insurance program's debt and reinvest the savings into mitigation efforts;
• Raise the amount of money available to flood insurance policyholders who wish to make mitigation efforts at their properties, including elevating their homes. Property owners could access up to $60,000 for such efforts, an increase from the $30,000 available now;
• Increases funding for FEMA's flood-mapping program so that maps are more accurate;
• Provides $1 billion a year in mitigation grants, prioritizing properties that have suffered repetitive flood losses;
• Caps the amount of money private insurers who issue flood policies can make. 
• Makes changes to the claims process to incorporate lessons learned from Sandy, including holding FEMA to strict deadlines so that homeowners get quick and fair payments.

FEMA's new rating plan is a bid to predict flood risk more accurately and reverse financial losses. During the past 50 years, the agency has collected $60 billion in flood premiums, but has paid $96 billion in claims.

FEMA says its new rating is transformational. Until now, flood insurance rates have been determined by maps FEMA creates to predict which homes have a 1% annual risk of flooding.

Rates were determined by pooling the risk of groups of properties in designated flood zones; that means the owner of a $100,000 home would pay the same rate as the owner of a $1 million home with the same flood risks, even though replacement costs are much higher for the more expensive house.

The new program uses mapping data and science to charge premiums on individual homes based on the value of each property and its unique flood risk.

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Some Shore residents and public officials have complained in recent years that FEMA's flood maps have not taken into account the extensive mitigation efforts that have taken place since Sandy, while others believe flood maps aren't taking into account potential increases in flooding as sea level rises.

Advocates say that increasing flood insurance rates without providing funds to help homeowners elevate their homes or pay for other mitigation efforts will not help reduce the risk of higher financial losses from storms.

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FEMA officials counter that the new rating system is designed to more accurately reflect flood risk and flood costs, while decreasing premiums for lower-value homes, where they say homeowners are currently paying more than their fair share for insurance. At the same time, premiums will rise on higher-value homes, which are currently underpaying their fair share, according to the agency.

Under Risk Rating 2.0, about two-thirds of policyholders will see their premiums stay the same or rise up to $10 per month, according to FEMA. About one in four policyholders will see an immediate drop in premiums of about $86 per month, according to the agency.

About 11% of policyholders will see premiums rise more than $10 per month, according to FEMA.

But Menendez and U.S. Sen. Bill Cassidy, a Republican from Louisiana who is one of the co-sponsors of the flood insurance reauthorization bill, have estimated that flood insurance premiums on some properties could double within four years under Risk Rating 2.0.

U.S. Reps. Frank Pallone Jr. and Bill Pascrell, both D-N.J., are expected to introduce a companion flood insurance bill in the House. 

“Superstorm Sandy devastated New Jersey nine years ago, and my constituents still know all too well how important a flood insurance program is after major flooding events," Pallone said in a prepared statement. "After the storm, insurance companies outright refused to make good on their promises to policyholders and instead pointed to the fine print while denying families who had lost everything. The National Flood Insurance Program must be both affordable and fair – otherwise it just doesn’t work."

Menendez' repeated efforts to reform the flood insurance system have previously failed in part, he said, because Republicans on the Senate's Banking, Housing and Urban Affairs Committee did not allow a hearing on the bill.

He said he believes U.S. Sen. Sherrod Brown, D-Ohio, who now chairs the committee, will give the bill a hearing.

"I think that combination of bipartisanship now, and the combination of Risk Rating going into effect, and many members hearing from their constituents," gives the bill a better chance to move forward, Menendez said.

Menendez is expected to officially announce the flood insurance bill's introduction today at a press event in Paterson that will also include U.S. Sen. Cory Booker, D-N.J., and Pascrell, as well as Sandy advocates. 

Jean Mikle covers Toms River and several other Ocean County towns, and has been writing about local government and politics at the Jersey Shore for nearly 37 years. She's also passionate about the Shore's storied music scene. Contact her: @jeanmikle,  jmikle@gannettnj.com.