CAPE MAY COURT HOUSE — The Board of County Commissioners urged the state last week to study the socioeconomic implications of changing the way flood insurance premiums are calculated.
According to a resolution the board passed, an estimated 77 percent of policy holders will pay higher insurance costs and studies indicate that some policies will need to quadruple to reflect risks they already face.
The Federal Emergency Management Agency (FEMA) has undertaken an initiative called “Risk Rating 2.0: Equity in Action” that transforms the National Flood Insurance Program (NFIP). It became effective Oct. 1 for new policies and will kick in April 1, 2022, for policy renewals.
The county resolution states:
“Risk Rating 2.0 is intended to address a legitimate problem; however, it was hastily implemented without adequate transparency into the process and will likely result in the majority of policy holders incurring an increase in insurance premiums that will be compounded year after year.”
It states FEMA has not disclosed a comprehensive analysis of the expected impacts of implementing Risk Rating 2.0, nor has the change been fully vetted and analyzed by experts.
The resolution states the Board of County Commissioners is concerned that Risk Rating 2.0 will not only affect Cape May County but also cause insurance costs to increase substantially in low-income communities throughout the state, which are “among our last bastions of affordable homeownership in New Jersey.”
“The commissioners are further concerned that Risk Rating 2.0 will lead to a considerable number of lapsed insurance policies, which would lead to a catastrophic scenario for the state in the event of a hurricane or other natural disaster,” the resolution states.
Copies of the resolution were sent to Gov. Phil Murphy, state Sen. Michael Testa, Assemblymen Erik Simonsen and Antwan McClellan and all counties in the state.
Commissioner E. Marie Hayes noted the many miles of coastline in the county, saying no one is safe from rising rates.
“Don’t think for one minute that these insurance rates, the way that they are going to calculate it, is not going to affect you,” she said. “It’s going to affect the barrier islands but it’s also going to affect homes off the barrier islands.”
County Commission Director Gerald Thornton said the rate hikes could destroy the value of property, especially on the barrier islands.
“If you remember, we were all caught off guard after Hurricane Sandy on this issue,” he said.
According to FEMA, the new methodology leverages industry best practices and cutting-edge technology to enable FEMA to deliver rates that are actuarily sound, equitable, easier to understand and better reflect a property’s flood risk.
“FEMA is conscious of the far-reaching economic impacts COVID-19 has had on the nation and existing policyholders and is taking a phased approach to rolling out the new rates,” according to its website. It notes current NFIP policyholders can contact their insurance company to learn more about what Risk Rating 2.0-Equity in Action means to them.
While not required, policyholders may acquire an elevation certificate, which provides more refined elevation information about their building, and submit it to their agent to determine if it will lower their rate.
The website says FEMA is building on years of investment in flood-hazard information by incorporating private-sector data sets, catastrophe models and evolving actuarial science.
“With Risk Rating 2.0, FEMA now has the capability and tools to address rating disparities by incorporating more flood risk variables. These include flood frequency, multiple flood types — river overflow, storm surge, coastal erosion and heavy rainfall — and distance to a water source along with property characteristics such as elevation and the cost to rebuild,” it stated.
Currently, policyholders with lower-valued homes are paying more than their share of the risk while policyholders with higher-valued homes are paying less than their share of the risk, according to FEMA. Because Risk Rating 2.0 considers rebuilding costs, FEMA can equitably distribute premiums across all policyholders based on home value and a property’s unique flood risk.
Existing statutory limits on rate increases require that most rates not increase more than 18 percent per year.
FEMA’s flood map data reportedly informs the catastrophe models used in the development of rates under Risk Rating 2.0.
“We are maintaining features to simplify the transition to Risk Rating 2.0 by offering premium discounts to eligible policyholders. This means FEMA will continue to offer premium discounts for pre-FIRM subsidized and newly mapped properties,” it stated.
Policyholders will still be able to transfer their discount to a new owner by assigning their flood insurance policy when their property changes ownership.
Discounts to policyholders in communities who participate in the Community Rating System (CRS) will continue. Communities will continue to earn National Flood Insurance Program rate discounts of 5 percent to 45 percent based on the CRS classification.
“However, since Risk Rating 2.0 does not use flood zones to determine flood risk, the discount will be uniformly applied to all policies throughout the participating community, regardless of whether the structure is inside or outside of the Special Flood Hazard Area,” FEMA stated.
Policyholders of 10,193 single-family homes will see decreases of more than $100 per month in the first year, according to FEMA
Of all single-family homes with New Jersey National Flood Insurance Program policies, a total of 71,904 policyholders will see increases of zero to $10 per month and 14,984 single-family home policyholders will see increases of $10 to $20 per month.
Over the past 50 years, FEMA has collected $60 billion in National Flood Insurance Program premiums but has paid $96 billion in costs including losses, operating expenses and interest. Taxpayers and policyholders are adversely affected when the program does not generate the revenue needed to pay claims. Risk Rating 2.0 will help put the NFIP on solid financial footing by creating a more stable program that is accountable to taxpayers, according to FEMA.
More information is available at fema.gov/flood-insurance/risk-rating.
By JACK FICHTER/Sentinel Staff