'RATE SHOCK' COMING IN FLOOD INSURANCE PREMIUMS, MENENDEZ WARNS

WASHINGTON - A New Jersey senator said a new increase in flood insurance premiums could lead to "rate shock" for homeowners.

Sen. Bob Menendez, a Democrat, joined two Louisiana Republicans, Sens. Bill Cassidy and John Kennedy, in calling for a freeze on a new risk evaluation system that could significantly raise premiums for flood insurance for hundreds of thousands of Americans.

"Our problem here is FEMA (the Federal Emergency Management Agency) is less than transparent in terms of how they intend to pursue this (rate increase) and what is the actual rate shock that will take place," Menendez said Thursday during a call with Cassidy, Kennedy and journalists from across the nation.

The senators said the new evaluation system in FEMA's National Flood Insurance Program, called Risk Rating 2.0, is scheduled to take effect on Friday for new homeowners and could nearly double the cost of flood insurance for some homeowners within four years. The system will apply to policy renewals beginning April 1, 2022.

The new risk calculation for insurance premiums will integrate disaster data, modern flood maps, flood frequency and rebuilding costs, among other new information sets. Previously, flood insurance rates were determined by maps FEMA creates to predict which homes have a 1% annual risk of flooding.

The three senators say the impact of the new calculation could make flood insurance unaffordable to working class families who use the program.

More than 5 million home- and business owners in the United States have flood insurance policies through the FEMA program. In New Jersey, about 217,200 homes are covered by the program.

"I support revamping our flood insurance rating system to include the most sophisticated actuarial data, including data on climate change," Menendez said during a press conference with reporters from across the country. "While I tried to give FEMA the space to develop its new rating system, and want to be supportive of a process to achieve that, Risk Rating 2.0 as it stands needs to be delayed."

FEMA officials say the new rating system is designed to more accurately reflect flood risk and flood costs, while decreasing premiums for lower-value homes, where they say homeowners are currently paying more than their fair share for insurance. At the same time, premiums will rise on higher-value homes, which are currently underpaying their fair share, according to FEMA.

Under Risk Rating 2.0, about two-thirds of policy holders will see their premiums stay the same or rise up to $10 per month, according to FEMA. About 1 in 4 policyholders will see an immediate drop in premiums of about $86 per month, according to the agency. About 11% of policy holders will see premiums rise more than $10 per month, the agency estimates.

The new risk system allows for annual premium increases to rise up to 18% annually for primary homes, or 25% a year for vacation homes, until the cost matches the risk. Menendez said that could nearly double the cost of insurance premiums within four years.

The three senators said 18% price hikes in premiums annually could lead as many as 1 in 5 flood insurance policyholders to leave the program. The result would be hundreds of thousands of at-risk homes and businesses without flood insurance protection and even higher premium rates for the policyholders who remain, they said.

The senators urged President Joe Biden to freeze the implementation of Risk Rating 2.0 or to cap annual premium increases at 9%.

Staff Writer Michael Diamond contributed to this story.