NEW JERSEY HOMEOWNERS ABOUT TO SEE YEARLY RATE INCREASES FOR FLOOD INSURANCE

Homeowners in flood zones throughout New Jersey likely will begin paying higher premiums for flood insurance beginning Friday, despite a last-minute plea by elected officials for FEMA to delay the rate changes.

The National Flood Insurance Program's Risk Rating 2.0, managed by FEMA, 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 the risk.

Lawmakers said the hikes could leave homeowners priced out of the insurance market.

"We are extremely concerned about the administration's decision to proceed forward with the implementation of this program without first determining an alternative that avoids the prospect that hundreds of thousands of families will be inclined to forfeit flood insurance on their homes," U.S. Sens. Bob Menendez, D-N.J., and Bill Cassidy, R-La., wrote in a recent letter to FEMA administrator Deanne Criswell.

The flood insurance program covers about 217,200 homes in New Jersey.

The new ratings are being rolled out as people have flocked to the Jersey Shore during the pandemic, paying top dollar for waterfront homes despite the memory of Superstorm Sandy and the growing threat of climate change.

"Some people ask, does the house have to be raised, what the flood insurance is, things like that," said Brian Kachoogian, a real estate agent with Keller Williams Realty Ocean Living in Point Pleasant. "But it's not as much of a nervous thing as it was in the past."

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 the property and the unique flood risk.

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

FEMA expects expects 21% of the state's policyholders to receive decreases; 64% to receive increases of up to $120 a year in increases; 10% to receive increases of up to $240 a year; and 5% to receive increases of more than $240 a year.

The new rates go into effect for new homebuyers beginning Friday. They go into effect on policy renewals beginning April 1.

FEMA's program has drawn criticism for a lack of transparency that leaves homeowners unsure if they will see a decrease or if they will see their policies nearly double every four years.

"They have not disclosed how they're rating anything," said George Kasimos, a real estate broker who formed the advocacy group Stop FEMA Now after Sandy. "So if you call your insurance agent and say, 'What's my flood insurance is going to be once this kicks in?' nobody knows."

Shore-area lawmakers have urged FEMA to put the program on hold.

Menendez and Cassidy in their letter said their understanding was that FEMA estimates roughly 900,000 policyholders, or nearly 20% of all policyholders, will drop out of the program over the next 10 years in large part due to unaffordable premiums.

They were joined by House members, including Reps. Bill Pascrell and Frank Pallone, both D-N.J., who asked for more time so that insurance agents can get their clients rate information.

"The National Flood Insurance Program must be both affordable and fair -- otherwise it just doesn't work," Pallone said. "I'm working closely with my colleagues in Congress and the Biden administration to stop unfair rate hikes that would hurt New Jersey families."

FEMA officials defended the program, saying it will be a fairer way to provide -- and pay for -- flood insurance.

"The figures in the Senate letter are misleading and are taken out of context," a FEMA spokesperson said. "Risk Rating 2.0 will result in a net increase in the number of people who purchase flood insurance in the next 10 years."

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

They can mitigate their risk in part by elevating their homes. And the House, as part of its budget bill, has included $1 billion to help low- and moderate-income households afford flood insurance.

For now, there is no sign that the prospects of dramatically higher insurance rates have driven people away from the Jersey Shore's housing market.

In fact, waterfront homes have been prized possessions during the pandemic, observers said, attracting people from northern New Jersey, New York and Philadelphia in droves.

The influx has driven prices higher. In the Beach Haven West section of Stafford, a neighborhood decimated by Sandy in 2012, 13 homes sold last year for at least 80% more than they were assessed, according to an Asbury Park Press analysis of sales data.

Real estate agents say the activity has slowed down, but only a little. Jeffrey Childers, with Childers Sotheby's International Realty, said he recently listed a waterfront home in Brick and got six bids, all of which were higher than the asking price of $1.5 million.

"One of the standard questions we get for waterfront homes is, 'How did it fare in Sandy, and what did the sellers do in response to that?'" Childers said.

"But I'm not really seeing it as a hesitation to buy anymore," he said.

"You know, we dealt with that for years, but people are aware that it happened want to know what happened but ultimately are still buying shore houses on the water."

Staff writer Jean Mikle contributed to this story

Michael L. Diamond is a business reporter who has been writing about the New Jersey economy and health care industry for more than 20 years. He can be reached at [email protected].