Costlier Flood Insurance Policies Hit Some Hard But Are Needed

New buyers of flood insurance are now paying premiums under the Federal Emergency Management Agency's "Risk Rating 2.0" system. Existing policyholders will start being charged the new rates in April, with their increases limited to 18% per year.

First the good news - one-fifth of New Jerseyans covered by the program will see their annual premiums go down.

Most will be charged more for flood insurance, an average of $120 a year more. About 5% will see increases of more than $240 per year, especially in the most flood-prone shore areas. Nationwide, the average flood insurance premium is $700 per year, according to FEMA.

FEMA said the new rating system more accurately reflects flood risk and ensures that National Flood Insurance will be around for generations to come. Where it used to base rates on broad flood zones and property elevations, the program now takes into account the property's distance from water and the cost to rebuild.

Under the prior ratings, policyholders in lower-value homes were often subsidizing the flood insurance of those in higher-value homes, according to FEMA. Risk Rating 2.0 fixes this injustice, the agency said.

The nonprofit Pew Charitable Trusts analyzed the new rating system and found it is fairer, follows best practices and encourages flood mitigation by offering lower premiums in exchange for reducing risks by elevating utilities, adding flood vents and such.

"Without Risk Rating 2.0, every NFIP policyholder would get a rate increase this year," Pew said in its analysis. Under the new, more equitable plan, nearly 1.2 million of the more than 5 million NFIP policyholders will see an immediate decrease in premiums. ... Of the single-family homeowners who will see costs rise, nearly 88% will face a modest increase of $10 or less per month."

Sen. Bob Menendez, D-N.J., and Sen. Bill Cassidy, R-La., said they've heard about a yet-to-be released analysis by the Congressional Budget Office that predicts 900,000 policyholders will drop out of the program as a result of rate increases over the next 10 years.

They are proposing to reduce the allowed rate increase to 9% a year (still rising eventually to the full rate) and delaying the new rating system to give Congress another chance at reforming flood insurance.

For years Congress has not been able to come up with a comprehensive revamping of the program through legislation. And while limiting annual increases to 9% might be a reasonable alternative, the proposal for that comes a bit late with new policies now already being written under the new rates.

The National Flood Insurance Program is more than $20 billion in debt because its rates haven't been enough to pay for the benefits claimed.

Barrier-island, bayside and riverfront communities require flood insurance for their real estate markets to work. Policies are mandatory for the many mortgages from government-backed lenders.

More realistic flood insurance costs might result in slightly lower resort property prices.

If the rates diminish the incentives for building more and bigger houses at risk of rising seas, that would be a good for everyone in the long run.