Sybil and Bill West have never fled a hurricane or filed a flood claim, but they’re trapped in their Wrightsville Beach cottage by rising flood insurance rates.
They’re in their 70s, eager to sell their two-bedroom home and move inland where their grandchildren live. So after a young couple signed a contract in October to pay more than their asking price of $595,000, the Wests began house-shopping in Greensboro.
Then the buyers backed out of the deal. A second couple made an offer and later backed out, too.
The buyers were alarmed by the onset of sharply higher flood insurance premiums mandated by Congress and the Federal Emergency Management Agency. With the National Flood Insurance Program running a $24 billion deficit after huge payouts from Hurricanes Katrina in 2005 and Sandy in 2012, Congress in 2012 ordered radical changes to make premiums more closely reflect the true risk of damage for Americans who own insured property in floodplains near rivers and along the coast.
The changes began taking effect in 2013 and prompted protest from coastal residents and real estate interests across the country. Rep. Maxine Waters of California, one of the law’s co-sponsors, criticized FEMA’s implementation of the new law and supported legislation aimed at postponing the insurance premium increases. North Carolinians including Sen. Kay Hagan and Reps. Walter Jones and Mike McIntyre also are pushing for the delay, which could receive a Senate vote as soon as this week.
The loudest support for action to stall the insurance changes has come from New Jersey, Louisiana and other states where the impacts are showing up more quickly than in North Carolina. In states where flood insurance rate maps were updated last year, homeowners quickly learned what their new rates would be. The picture for most policyholders in North Carolina will become clearer as new flood maps start rolling out this spring.
The Wests pay just $850 a year for their flood coverage now, thanks to generous taxpayer subsidies that are being phased out under the new law. The new rate will be determined partly by the upcoming flood map for New Hanover County and by a surveyor’s elevation certificate required under the new law. One coastal policy expert reckons that the new premium for the Wests’ cottage could reach as high as $21,000.
“We had two contracts, and both of them crashed because of this uncertainty,” Sybil West said. “I’m alarmed because I think this law is going to cause problems all across the coastal United States. It puts us in a bind, and it puts buyers in a bind.
“I’m not opposed to paying more” for flood insurance, West said. “If people live on the beach, they need to pay for that. But I think nobody realizes what these subsidies have been. This is an education.”
Huge increases for some
The 2012 law, known as Biggert-Waters, eliminates subsidies that kept flood insurance rates low for older businesses, vacation homes and investment properties built before the first local flood maps were drafted in the mid-1970s. That’s about 13 percent of the 138,000 flood insurance policies in North Carolina and 21 percent of the 5.6 million policies nationwide, FEMA says.
These subsidies will stay in place, however, to protect folks who continue living in their primary residences – but only as long as they keep their homes. When they sell, the buyers will pay the new rates, which usually will be much higher.
The law directs insurance agents to raise premiums for the original owners of these older properties by 20 percent a year. The gradual increases will continue – it could take 10 years or longer in some cases – until they reach what FEMA calls their actuarial rates. The rate increase for new owners is immediate, not gradual.
“The Biggert-Waters Act is going to cause people not to be able to sell their homes,” said Willo Kelly, government affairs director for the Outer Banks Association of Realtors. “It’s going to cause people to go into foreclosure.”
Most of these older structures were built 6 to 10 feet or more below current flood elevation standards. As their rates rise, many of these policyholders eventually will have to elevate or replace entire buildings, replace ground-floor apartments with open-air carports, or take other steps to avoid ruinous penalties that could set premiums as high as $53,000 for a building 10 feet below the 100-year-flood mark in the highest hazard zone. And that sum is just for a policy on a building worth $250,000 with $100,000 in contents – the maximum coverage under the National Flood Insurance Program.
Most flood insurance policies are in coastal counties, but the law’s impact will reach across the state.
“You’ve got flood areas along creeks in Raleigh and in Charlotte,” said Tyler Newman of the Wilmington-based Business Alliance for a Sound Economy, which represents homebuilders and developers. “And if those homes or businesses have flood-insurance policies, they’re going to be affected by this as well.”
The ‘grandfather’ clause
The new law also will raise premiums for a second, potentially larger group of homeowners: It eliminates “grandfather” protections for owners of homes and businesses built after the first flood insurance maps were issued in the mid-1970s – but before current standards took effect. No estimates have been published on how many policies this would affect, but the impact could be far-reaching.
Property owners in this group who are paying lower premiums based on older flood maps would start paying more if updated maps call for higher rates. Owners of primary residences are not exempt from this provision, which will leave policyholders vulnerable to sharp fluctuations in their insurance premiums every time a new map is published.
In some neighborhoods, the “grandfather” protection has shielded homeowners from huge premium increases over the past decade. Flood maps are updated every few years to mark the areas where a flood is expected sometime over the next century. Storm surges of 3 feet or more are expected in the highest-hazard “VE” zones, while less flooding is expected and lower elevations are allowed in “AE” zones.
Each building is assigned a base flood elevation, measured in feet above sea level. Policyholders are penalized for buildings constructed lower than the base flood elevation, because they are more likely to flood. They receive discounts for every foot they build higher than the base elevation.
Plenty of uncertainty
Spencer Rogers helps coastal residents make sense of the new law in his role as a construction and erosion specialist for N.C. Sea Grant, a coastal research and education program. He points to a Wrightsville Beach house several blocks from the Wests’ cottage as an example of changes that will come when policyholders lose these grandfather protections.
The waterfront house was built in 2006 in a Harbor Island neighborhood then governed by the less-severe AE flood rating. It was constructed 5 feet above the base elevation, so the owner received a discount on the insurance: $600 a year instead of the standard $3,600 rate.
But when new flood maps were published in 2007, the neighborhood was reclassified under the more severe VE rating. Now the same house is 3 feet below the base flood elevation, Rogers said. The annual payment will be phased in over five years to a new premium of about $21,000.
Bill Sisson, a former town alderman and New Hanover County commissioner, lives next door to that Wrightsville Beach home. Many of his neighbors face similar steep increases in their insurance bills, he said.
“They built their houses to the elevations that were required,” Sisson said. “Even sometimes when they built above those elevations, it’s still below what the new elevations are now. What’s going to happen when the next (flood map) comes out and says instead of being 18 feet above sea level, you’ve got to be 20 feet above?”
Some landowners will find good news when the new flood maps roll out. John Dorman, director of the N.C. Floodplain Mapping Program, says improved computer modeling has made the maps more accurate across the state. The 100-year floodplain covers about 18 percent of North Carolina’s land area, he says, and it includes 167,847 of the state’s 5.21 million buildings.
“We know spatially where every building is,” Dorman said. “We’re seeing that base flood elevations are going down in some coastal areas.”
Rogers, the N.C. Sea Grant specialist, says the next map updates won’t clear up all the uncertainties about the National Flood Insurance Program and the Biggert-Waters Act.
“We don’t know what’s coming,” Rogers said. “It’s against federal policy now to put (the expected) sea-level rise into flood maps, but the law says FEMA must decide how to deal with sea-level rise. That could easily add another foot, or it could add 3 feet, based on some forecasts.
“As long as those kinds of uncertainties are out there, it’s really hard to know what to do – other than to build as high as you can get away with. Clearly, higher is better.”
Dorman’s agency also is barred by state law from adopting any regulations based on a sea-level forecast. The legislature wants to postpone regulations while the Coastal Resources Commission spends a few years developing a new scientific forecast.
In Wrightsville Beach, the Wests say they are unlikely to spend money for changes that would improve the elevation rating on their little house. The eventual new owner will probably tear it down and build a “megabox” in its place, they said.
But they’ll do whatever it takes to find that buyer.
“I’m willing to come down a hundred thousand dollars on this,” Sybil West said. “I want to go see my grandchildren.”