Flood insurance reform: Shore to pay more in the future

Feb. 05--Likely changes to the National Flood Insurance Program are poised to raise costs for many Shore homeowners, perhaps substantially.

Meanwhile, uncertainty over the program is already taking a toll as potential purchasers are reluctant to buy waterfront properties with such a big financial question still unanswered.

The program, which insures roughly 1 in 15 housing units in New Jersey, remains in limbo as Congress wrangles with broad spending questions and other policy priorities.

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Congress must periodically reauthorize the National Flood Insurance Program so that flood insurance policies can continue to be issued and renewed.

Initially set to expire Sept. 22, 2016, the program has been extended several times. It is now expected to expire Feb. 8, the same day the federal government will run out of money.

The National Flood Insurance Program provides flood coverage for 5 million policyholders in America, including 228,000 in New Jersey. Watch the video above to see how the system is built.

The average policyholder in New Jersey pays about $1,000 in premiums every year.

The unknown -- how restrictive and expensive flood insurance will be -- appears to be scaring off buyers of waterfront real estate and suppressing home values along the water, according to real estate professionals.

NFIP is more than $25 billion in debt, and claims arising from a series of devastating storms last year -- including Hurricanes Harvey, Irma and Maria -- are expected to put even more of a strain on the system.

George Kasimos, a Toms River resident who founded the superstorm Sandy advocacy group Stop FEMA Now, said almost every bill that has been proposed in Congress would raise flood premiums so much that many coastal residents could be forced to sell their homes.

"Every bill that is out there right now is going to hurt the people," Kasimos said. He said he fears many homeowners will be forced into foreclosure as flood insurance premiumsm continue to rise.

Lawmakers are working on another short-term spending bill to keep the government operating past Feb. 8, but U.S. Rep. Tom MacArthur, R-N.J., said the flood insurance reauthorization should be voted on separately.

"The concern is, this isn't funded with an appropriations bill, so it shouldn't be attached to these continuing resolutions," said MacArthur, whose district includes parts of Ocean and Burlington counties. "We're trying to decouple it and trying to do a long-term reauthorization."

But perhaps a resolution is imminent, as there is some belief that Washington lawmakers will carve out flood insurance while they attempt to hammer out another temporary spending bill to avoid a government shutdown.

"At the end of the day, the idea is that this is something that affects every state," said Alan Rubin, a principal at the Washington lobbyist Blank Rome LLC. "In the middle of the country, you have the Mississippi, you have the Colorado River and on the coasts, you have flooding risk all over."

Stop FEMA Now has advocated for passage of a bill introduced last year by Sen. Robert Menendez, D-N.J., the Safe, Affordable, Fair and Efficient (S.A.F.E.) Flood Insurance Reauthorization Act, which would cap annual premium increases at 10 percent and increase oversight and restrictions on private insurance companies that write flood policies.

But Menendez' bill, which was co-sponsored by three Republicans and three Democrats in the Senate, has not yet had a hearing in the Senate Banking Committee.

"There is a divide, with members from coastal states being a lot more sensitive to this issue," Menendez said. "They recognize that government has an important role to play in disaster recovery, while other members have a 'you're on your own' type of approach. They question the government's role."

Menendez' bill includes grants of up to $100,000 for flood policyholders to pay for mitigation projects on their homes that would make them less vulnerable to flooding. Homeowners could access this money before their homes were flooded.

Flood policies now provide up to $30,000 for mitigation projects, but that money is only available after a flood claim is made.

"One of the ways we fix the underlying problem with national flood insurance is by reducing the underlying risk that has caused flood premiums to soar," Menendez said. "Some of our colleagues just want to raise premiums. I want to reduce risk."

Premiums are almost certain to rise for policyholders to better reflect the cost of providing the coverage, said Rubin, an expert on natural disaster recovery.

"You're not going to see a $500 increase in your flood insurance tomorrow, that's not going to happen," he said. "It's going to be phased in, over 5 to 10 years."

It's likely that coastal communities will be hit harder.

"You're going to have to pay more for your flood insurance if you live in beautiful Cape May than if you live in the middle of the country," Rubin said.

A bill supported by MacArthur, the 21st Century Flood Insurance Bill, passed the House last fall. The bill would provide up to $60,000 for mitigation projects, and homeowners could apply for that money before flooding occurs.

The bill caps annual premium increases at a maximum of 15 percent per year, down from the 18 percent allowed now, but allows flood premiums of up to $10,000 on primary homes.

Stop FEMA Now has strongly criticized the bill, saying it would drastically raise premiums while not providing proper oversight of private insurance companies.

Stop FEMA Now has created a comparison of all the proposed flood insurance proposals.

MacArthur and Republican U.S. Rep. Leonard Lance, who represents the 7th Congressional District in northwestern New Jersey, were the only members of the state's Congressional delegation to vote in favor of the legislation.

"You have to reach for what you can actually achieve," MacArthur said. "At least this bill passed the House. I think the things I would point to are the imitations on how much premiums can increase per year, and we put a cap on how much you can charge in total. I think that's important on the affordability side."

While there is optimism from lawmakers and observers that Congress will detach flood insurance from the wider budget fight and find a solution, parts of the housing market have been sluggish as they await an answer.

The inaction on flood insurance has damaged waterfront property values, said Christian Schlueter, president of the New Jersey Association of Realtors and a real estate broker in Toms River.

"The problem is that most people are apprehensive about buying waterfront because they don't know what the status of flood insurance is going to be," Schlueter said. "It's created so much uncertainty that people tend to stay away from (waterfront properties)."

That limits the pool of potential buyers, which means sellers are getting fewer offers and the ones they are getting come in well below asking, Schlueter added.

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Jean Mikle: 732-643-4050, [email protected], @jeanmikle; Russ Zimmer: 732-557-5748, [email protected], @russzimmer

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