Majority of Michiganders see lower flood insurance rates as federal government adjusts pricing

The sun was out Thursday and a soft breeze was blowing leaves down the hill and onto the lawns that lined the quiet street near Clinton River Heritage Park in Utica.

However, Kim Maday-Apley remembers the street as a raging river.

"We had a terrible storm and there was flooding everywhere," said Maday-Apley of Romeo, an agent with Farmers Insurance. "I wanted to check on one of my clients so I drove down to the area but I couldn't get near the home."

The water in the street was so high local residents were using boats to get around.

When she finally made it to the home she found her client - a divorced mother with several children - walking around in her living room wearing waders and looking distressed.

"She was in tears. She lost everything, all of the contents of the home," Maday-Apley said, recalling her visit after the storm in the spring of 2004. "There was also a lot of structural damage."

But she had flood insurance.

She didn't want it because it was another expense she couldn't afford but her home was at the bottom of a hill in a floodplain and her mortgage required it.

She no longer lives in the home but the dwelling still requires flood insurance, which is expected to change in the coming year.

Changes in the works

For the 20,481 Michiganders with a combined $4 billion worth of flood insurance coverage through FEMA's National Flood Insurance Program (NFIP), a federal program created in 1968 that provides 90% of U.S. flood insurance policies and delivered by a network of 60 insurance companies including Farmers Insurance, major changes in how their monthly rates are calculated will result in some policyholders seeing increases and some seeing decreases based on a wider range of data sources.

Flood insurance, offered through the NFIP, covers direct physical losses caused by a flood that can cover buildings, the contents in them, or both, and is generally required for mortgages on properties considered to have a roughly 1 in 100 chance each year of flooding, but it also an option for anyone who lives in a community that participates in the NFIP program. The policies are extended to homeowners, renters, and business owners. Communities that participate in the NFIP agree to adopt and enforce ordinances that meet or exceed FEMA requirements to reduce the risk of flooding.

Shelby Township is among the communities in Macomb County that chose to participate in the NFIP when it was first offered.

"Our participation has enabled our residents to secure flood insurance and disaster relief," said Shelby Township Building Director Tim Wood, noting that in order to participate, the community is required to enforce flood plain management practices such as discouraging new construction in a flood zone, which Shelby has done.

In fact, of the 50 buildings in Shelby Township that were at risk for flooding, 40 of them have been removed by property owners.

"At the end of the day we now only have 10 insurable buildings that are in the floodplain," Wood said.

As a result of the township's efforts in exceeding the minimal standards for flood prevention, residents are extended a 15% discount, which will be especially nice for those who might see an increase in their insurance premiums.

FEMA officials said the changes are necessary to correct inequities entrenched in the program, which covers about 5 million policyholders nationwide. Flood insurance rates will now be calculated using the agency's Risk Rating 2.0 methodology, which is a longer list of factors that better reflect an individual property owner's flood risk.

Statewide, 9,361 current NFIP policyholders are projected to see increases in their monthly flood insurance rates while the remaining 11,120 should see decreases in their premiums as a result of the methodology. According to FEMA data, the average amount of combined flood insurance coverage by Michigan community is around $4 million.

According to FEMA, 68.5% of Michigan's 1,773 communities are enrolled in the NFIP program including 26 in Macomb County with a total of 1,676 policyholders. Federal data shows Harrison Township having the most coverage at $127.2 million followed by St. Clair Shores with $98.4 million spread across town.

Of those 1,676 policyholders in Macomb County, 840 are projected to see monthly rate decreases while 836 will see a drop under the new pricing structure. Of those who will see an increase in their monthly rates: 797 are projected to be an increase between $1 and $10 per month. The remaining policyholders will see an increase of more than $10 a month.

Among the critics of the entire program is Macomb County Public Works Commissioner Candice Miller.

"The federal government should not be in the flood insurance business," Miller said, who believes flood insurance should be handled the same way other homeowner insurance policies are handled.

The former congresswoman said she was against it from the start saying it was created mostly for coastal communities in places like Florida, Louisiana and the Carolinas where hurricanes are a frequent occurrence.

"We are significantly at a disadvantage in Michigan," Miller said. "We don't have the flooding that they have there."

How it works

The rate increases for existing policy holders will not take effect until after April 1, the agency said. But new flood insurance policies purchased through the NFIP will be subject to the new pricing structure immediately. However, existing policyholders whose policies renew before April 1 and whose premiums will decrease under the new rating system will be allowed to take advantage of the lower rates sooner.

Brandon Lewis, director of Macomb County Emergency Management and Communications, said the flood plain maps will not change.

Only the methodology used to calculate flood insurance rates will be revamped.

"Other than to say it's going to put some families and homeowners in a difficult position I don't know enough about the methodology to comment on whether it's good or bad," Lewis said.

What he does know is that new technology will provide FEMA with a more accurate determination of risk factors.

Since the 1970s, flood insurance rates have been based on a limited number of data sources and have been driven mostly by a property's proximity to a federally-approved floodplain and its elevation based on 100-year flood risk. Under the old pricing system, every policyholder would have seen rate increases now and into the future.

The new rates will now be based on an expanded set of data sources including home value and the cost to rebuild along with several others to determine a property's true flood risk including threat of extreme rainfall events, climate change, distance from body of water, flood type, ground elevation, and other property-specific data like foundation/construction type and first floor height.

"All of these things work together to determine risks," Lewis said, thus allowing FEMA to provide more accurate pricing based on a property's individual characteristics.

Matthew Occhipinti, Michigan's NFIP coordinator and a floodplain engineer for the Michigan Department of Environment, Great Lakes and Energy (EGLE), said the new pricing system will not affect how many homeowners, renters, or business owners are eligible for flood insurance.

"I think that FEMA has known for a long time that they needed to update the way that they calculate rates," he said, adding for those who do see increases in their flood insurance premiums they're not going to jump the way they would have under the legacy pricing system. "This new methodology takes more of a granular approach so your rate will depend on a lot of different factors, so site specific details are going to matter."

Floods can happen anywhere and just one inch of floodwater can cause up to $25,000 in damage.

As an insurance agent for more than 25 years, Maday-Apley knows most people are not happy about having to buy flood insurance. But, as with fire insurance, she has seen what the policy can mean when disaster strikes.

"I was so happy that she had it," Maday-Apley said of the single mother impacted in 2004 in Utica. "Everything she lost was covered."

For more information about the NFIP visit floodsmart.gov/ or fema.gov/flood-insurance/risk-rating/profiles