Despite region’s propensity for flooding, fewer Hampton Roads homes have flood insurance

Sept. 15--Hampton Roads has so many houses at risk of storm surge that a real estate data firm says only four other regions nationally are more vulnerable.

Yet the number of people who buy peace of mind every year in case water seeps past the front door -- insurance that doesn't come with a homeowner's policy -- has been dropping even as extreme weather events pick up.

In all but one Hampton Roads city -- Portsmouth -- fewer homeowners carry flood insurance than they did five years ago, according to data compiled by The Associated Press. It's the same in other major cities in flood-prone states, including the targets of two recent hurricanes, Texas and Florida.

At the root is a government program first started in 1968 and overseen by the Federal Emergency Management Agency requiring owners of homes in flood zones seeking a federally backed mortgage to buy insurance, typically set at an artificially low rate that wouldn't reflect the actual risk. The premiums paid through the National Flood Insurance Program would ideally pay for losses.

But the almost 50-year-old program is nearly $25 billion in debt, due in large part to massive claims from hurricanes Katrina (2005) and Sandy (2012). In 2012, the federal government introduced programs to encourage communities to lessen flooding disasters and attempted to quickly raise the rates of homes in areas where the flood risk was higher. The latter effort slowed down amid opposition from industry groups and lawmakers who thought rates were rising too fast, hurting homeowners.

Still, average flood insurance program premiums have ticked up in the last five years, according to the AP data.

In Virginia Beach, the average annual rate rose 6 percent to $566. Rates were up 10 percent in Norfolk to $782. On the tiny island of Tangier, the number of policies has dropped from 90 to 61, while the average rate has ballooned by 35 percent to $876.

Insurance agents have said policies for houses in high-risk zones rarely cost less than $2,000.

Ratepayers still risk premiums rising by 25 percent annually, and surcharges of as much as $250 a year have been added to the policies of homeowners who rent their houses.

Old Dominion University economist Larry "Chip" Filer said more and more homeowners are letting their flood insurance lapse after they've paid off their mortgage or without lenders realizing it, because of the rising rates. And as more people have dropped out, there are fewer people paying to cover the losses.

"This is putting a massive financial strain on the program," he said.

All but seven states have seen the number of policies drop. Only Idaho, Massachusetts, New York, Hawaii, Delaware, Louisiana and Colorado recorded the same number or more flood insurance policies in 2017 compared with 2012, according to data compiled by the AP, based on information from the FEMA.

Now the program has hurricanes Harvey and Irma to fund.

And Congress has until December to debate how to get more people covered while making the program, which was originally set to expire this month, more solvent.

An annual report from real estate data firm CoreLogic estimates that Hampton Roads -- which includes the cities in South Hampton Roads, the Peninsula and Gates and Currituck counties in North Carolina -- has the fifth-highest risk in case of a severe storm surge, based on the number of houses that could be affected.

This year's report, released ahead of Hurricane Harvey, even put Hampton Roads two places ahead of Houston for the number of structures at risk. Only Miami, New York, Tampa and New Orleans are more at risk than Hampton Roads.

What's the worst that could happen in a worst-case scenario?

More than half the houses sitting between the Peninsula's Gloucester County and the tip of Currituck County in North Carolina could be destroyed. That's 388,349 homes, costing nearly $87.4 billion to rebuild.

Even if just the homes with the most risk of being affected by the smallest Category 1 hurricane were destroyed, that would still be 20,814 houses costing $5.4 billion.

Mike Vernon, who helps homeowners lower their flood insurance premiums through home fixes and elevation certifications, was shocked by the drop in local coverage since 2012.

"More properties have been built, the flood zones have gotten bigger," he said, as he looked over the pages of data.

Vernon said he sold more policies in the two weeks following Harvey's hit in Texas than he had in the past few months, mostly voluntary policies priced at about $450 a year bought by homeowners who no longer have a mortgage or aren't in a flood zone.

The smaller number of policyholders in the past five years could be partly attributed to more accurate flood mapping in the ensuing years that might exempt a property that needed insurance before, he said. He speculated that private insurance policies, albeit minuscule compared to the number of National Flood Insurance Program policies, could also be contributing to the drop since that number isn't included.

At Prosper Insurance Group, the calls nearly doubled in the week between Harvey and the week leading up to Irma, with some callers wanting to know if they already had flood insurance or how to get it. Drew Monroe, the agency's president, said the firm fielded 2,347 incoming calls.

"People have short memories," he said. "They wait until the last minute."

For now, federal insurance policies still account for the vast majority sold, largely a result of private insurers unwilling to take on the risk and the policies not being guaranteed by the government.

But Monroe said he expects private insurers to eventually take a larger role, creating a competitive market that could potentially lower costs and provide better customer service.

"It is definitely an industry begging to be disrupted," Monroe said.

Early on, insurance companies didn't feel like they could accurately predict flood risk. Now, storm monitoring technology has improved to the point where the companies can feel confident about the risk they're taking on.

Just don't expect them to take on the same risks as the government.

"There's homes that shouldn't have been built the way they're built," Monroe said. "The insurance companies aren't going to want to insure those."

ODU's Filer doesn't see private insurers filling the void or creating an idyllic competitive marketplace that benefits homeowners, though.

"The private insurers do not make this better," as long as the number of homeowners taking out insurance remains so low, he said, saying the likelihood is rates will rise even more as insurers cherry-pick safer properties to cover. "You're dealing with a set of properties that are extremely risky."

He said lawmakers are going to have to discuss mandating coverage in order to make the program solvent, while at the same time giving homeowners an incentive, over a period of time, to "seek out less risky places to live" and encouraging regions to fix their vulnerabilities.

"It's absolutely infeasible to say the way we fix this problem is people don't live in New Orleans or Miami anymore," he said. "These places are going to be rebuilt."

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