When it comes to flood insurance in Vermont, it’s federal reforms that worry Susan Donegan.
The commissioner of the Department of Financial Regulation gives an example: She heard from a Washington County resident a few days ago who faced an $8,000 premium for a year of flood insurance in a high-risk zone. The bill was sticker shock for a property owner who hadn’t resided in a risky zone before the latest flood map for Washington County was adopted in March.
But it’s not just the new designation that drove up the price — and that may drive down the home’s property value. It’s the fact that the bill reflects the property’s actual risk.
Residential flood insurance, for the most part only available from the federal government, is undergoing major changes in 2013 with the rollout of the Biggert-Watters Flood Insurance Reform Act of 2012. The congressional changes were inspired long before Tropical Storm Irene, as was the Federal Emergency Management Agency’s initiative to update the country’s flood insurance rate maps.
“You can debate global warming,” Donegan said, “but you can’t deny that we’re having more severe and more frequent severe storms.” Known as BW-12, the Biggert-Watters Act was crafted to address that reality and shore up federal flood insurance in its wake.
Donegan doesn’t argue the intention, but she’s concerned about what its drastic changes will mean for Vermont property owners.
Flood insurance changes
Private property and casualty insurance is unique in that it doesn’t cover damages from flooding.
The risks proved so big in the 20th century that the private market for flood insurance virtually disappeared. Companies just wouldn’t offer it. In 1968, the federal government agreed to step in where commercial insurers feared to tread, and the National Flood Insurance Program was born. To encourage enrollment, Uncle Sam extended deep subsidies on premiums. No one paid the actual cost of their own flood risks.
That system essentially broke under the force of Hurricane Katrina in 2005, Donegan said. The deep subsidies were being phased out, policy by policy, mostly throughout the 1970s and 1980s. But Hurricane Katrina wreaked so much havoc that the insurance program itself became flooded. With as more major storms rolled in — Hurricane Ike in 2008, Hurricane and Tropical Storm Irene in 2011, Superstorm Sandy in 2012 — premiums didn’t meet demand, and reserves ran out. The National Flood Insurance Program plunged into debt by at least $20 billion.
The idea behind Biggert-Watters, passed in 2012, is to make the program solvent and self-sustaining. Rates will rise to reflect real actuarial risks, deductibles will increase to stem the government’s losses, and grandfathered subsidies will be phased out. Some homeowners may have already seen the price tag in January. Others may be looking at sticker shock in October, when many of the price hikes are scheduled to go into effect. The rest will follow late in 2014.
It’s impossible to say what the increases will be, because insurance rates vary so much by every property’s distinct characteristics and location. The best way to find out how you’ll be affected is to contact your insurance carrier. But suffice it to say, the spikes will be “dramatic,” Donegan said.
She’s discussed it in meetings with insurance commissioners from around the country, and many are asking congressional representatives to delay implementation to buy property owners some time before they get hit with a big new bill.
Mapping flood zones
Aside from those who see their premiums increase, some Vermonters will be seeing flood insurance bills for the first time.
Since 2004, FEMA has been attempting to modernize its flood zone maps, and progress has been piecemeal at best, according to Vermont’s flood hazard mapping coordinator, Ned Swanberg. Improved technology that allows for much better mapping accuracy also is laborious, he said. Often by the time new studies of an area’s hydrology, topography and hydraulics are sewn into digitized maps, they’re outdated.
Changes and information from Tropical Storm Irene, Swanberg said, aren’t even incorporated into the updated flood insurance rate map that went into effect for Washington County this spring. Nor will they be reflected in forthcoming updates for Bennington County. The data work for both was underway well before the storm hit. (Chittenden County’s maps were updated in 2011 and Rutland County’s in 2008.)
“They are never quite describing reality because they’re always based on past data,” Swanberg explained. “They’re representing the flood risk as best they could at the time of their study and as it was funded, and none of this is set up to think about the future flood risk.”
Property owners could take a big hit with changes in flood zone designation, Swanberg says, but the maps aren’t just about insurance premiums.
“These maps should be used to help society dodge misery and damage,” Swanberg said.
That perspective is shared by Rebecca Pfeiffer, a floodplain manager and the assistant NFIP coordinator with the state Department of Environmental Conservation. When consulting with towns on adoption of flood insurance rate maps and related regulations, Pfeiffer said, she often advises setting zoning requirements higher than what passes for minimum federal standards.
The minimum standards, after all, are based on flood maps, and she knows the maps are incomplete and outdated. They’re likely to stay that way for a while longer, too.
Swanberg wrote Tuesday on his office blog that no new map updates in Vermont will be undertaken by FEMA after Bennington County’s is finished. With federal budget restrictions, he said, the agency chose to focus its limited resources on states like Florida and Texas that are more prone to major storm flooding.
Getting flood insurance
Flood insurance is often a choice — one property owners frequently choose to avoid, especially outside the official high-risk zones.
But mortgaged properties inside flood zones typically are non-negotiable: They must be insured against damage from floods. Lenders bear the risk of loss if uninsured properties are damaged, and federally backed lenders are subject to fines from the federal government. What used to cost $350 per violation became $2,000 with the Biggert-Watters reform, and a $100,000 cap on fines within one calendar year was removed.
Sometimes homeowners choose to buy flood insurance and occasionally find they can’t purchase it because their towns don’t participate in the National Flood Insurance Program.
Private property owners in Vermont only have access to federal flood insurance if their municipalities first agree to adopt the flood insurance rate maps and the federal government’s minimum standards for building in flood zones. If the federal government is going to insure property in that town, Pfeiffer said, participation is a streamlined way of making sure that at least some standards are met and the government isn’t taking undue risk.
Isle La Motte on Lake Champlain is one such place. Lakeshore property owners there had wanted access to flood insurance for years, Pfeiffer said. The community’s involvement in NFIP had lapsed, and there wasn’t enough community support or interest in rejoining until 2012 — after severe flooding destroyed property that was neither federally insured nor covered by FEMA.
As of August 2013, all but 25 communities in Vermont now participate in the National Flood Insurance Program.
List of communities in Vermont that do not participate in NFIP:
Albany
Athens
Brownington
Charleston
East Haven
Eden
Ferdinand
Irasburg
Lunenburg
Maidstone
Morgan
Mt. Tabor
Newark
Norton
Searsburg
Sheffield
St. George
Sutton
Tinmouth
Victory
Waltham
Waterville
Westmore
Wheelock
Whiting
