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As a Realtor and city commissioner of St. Pete Beach, Melinda Pletcher thought she was prepared for how the long-awaited changes to federal flood insurance would affect her community.
But even she, more knowledgeable than the average homeowner, was taken aback when she learned her own $600 annual premium will rise more and more every year until it hits $8,000, according to a quote from an insurance agent. Her home is a foot above the base flood elevation, or the level the government sets for potential high water in a flood.
“My first reaction was, ‘They don’t know what they’re doing,’” Pletcher said. In addition to the sharp increase, she said her neighbor, who built their house six feet above the base flood elevation, is expected to pay even more. “It really just does not pass the common sense test.”
The Federal Emergency Management Agency is finally rolling out changes to the National Flood Insurance Program, which is the carrier for roughly 90 percent of Floridians with flood insurance. More than a million of them, or 80 percent of policyholders in the state, will see their premiums go up, according to the agency. Pletcher’s case is not unique — particularly in a place like Tampa Bay, where tens of thousands of people live in flood zones. People living close to the water are more likely to see hefty increases in their premiums, in some cases by 10 times or more over multiple years.
The new rules particularly stung for Pletcher, because the city of St. Pete Beach has incentivized homeowners to build in ways that, under the change, are no longer guaranteed to keep their flood insurance costs low, she said.
“We’ve done everything. We’ve met and exceeded your goals, FEMA,” Pletcher said. “We’re part of the solution here and now they’re saying, ‘Well, we don’t care about that anymore.’”
During a presentation to the St. Pete Beach city commission earlier this month, Jake Holehouse, president of St. Petersburg-based HH Insurance Group, ran quotes on homes around Tampa Bay near the water. He flicked through slides of one steep increase after another, which would take multiple years to take full effect.
- A $300,000 home in Ballast Point, just north of MacDill Air Force Base in Tampa, would currently pay $3,663 for a maximum coverage flood insurance policy. The rate is expected to rise by more than $2,000, he said.
- A nearly $1 million home on Apollo Beach would now pay $824, but the new rate will be more than $10,500.
- A $450,000 house in Feather Sound, on Old Tampa Bay near Clearwater, is expected to see its $1,658 premium more than double.
The new system, called Risk Rating 2.0, goes into effect Friday for anyone purchasing a new policy. For homeowners renewing existing ones, they will start seeing the changes on April 1. Increases to premiums are capped at 18 percent annually — which means the costs will be phased in over time.
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The estimates left St. Pete Beach commissioners stunned.
Mayor Alan Johnson suggested getting in touch with other coastal cities to lobby the federal government to reconsider.
“This becomes a major problem really fast,” he said.
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The changes to the National Flood Insurance Program are designed to assess each property’s risk on an individual basis, rather than lump homes into large buckets based on a few common metrics. The agency has said the goal of the change, which is the program’s first major overhaul since the 1970s, is to more accurately set premiums based on a longer list of data points, including risks associated with climate change.
The program has been in debt for years, after catastrophic storms starting in the early 2000s such as Hurricane Katrina sparked a rush of claims. The changes are intended to help ensure the program’s future by making it more financially stable. Under the new system, FEMA aims to charge rates that reflect the actual risks of pricier, waterfront properties, rather than the current system that often subsidizes those homes.
Cyndee Haydon, a local Realtor who’s on the insurance committee of the National Association of Realtors, said in a recent presentation to other real estate professionals that the changes are “really good news.”
“Properties that were along our beaches that are frequently over $1 million, have been paying artificially low rates, so say $2,000, $3,000 a year,” she said during a webinar on Sept. 16. “People in Largo and St. Pete have been paying that same $2,500 for a home that’s one-fourth the value. ... A lot of low-valued homes are subsidizing high-value homes.”
Some homes will see their premiums drop as a result of these changes.
Here’s how it works: Under the existing National Flood Insurance Program, premiums were calculated largely using two pieces of information, the type of flood zone a home is in based on FEMA maps and how high a home sits relative to potential flood levels. Under Risk Rating 2.0, the formula will still include elevation but will also incorporate the property’s proximity to water, the drainage of that water, whether it’s located on a barrier island or behind a levee, and modeling to show how the property would fare in potential storms, to name some examples listed in a Congressional Research Service report.
But the “real killer,” as Holehouse called it, is the fact that the formula will also include how much it would cost to rebuild each home.
That’s because a home that’s elevated will also be more expensive to rebuild, canceling out some or all of the potential rate reduction from being higher above the ground, Holehouse said.
“It basically takes away the incentive of somebody mitigating (the risk to) their house,” he said.
A home’s coverage is also capped at $250,000, the maximum amount a National Flood Insurance Program policy will pay out if a house is destroyed — regardless if it’s worth more.
But it’s not just pricier, elevated homes on Pinellas’ barrier islands that are expected to take a hit. Many homes in flood zones will likely see their rates go up, including properties in Gulfport, St. Petersburg, Seminole, Apollo Beach, Tampa, Hernando Beach, coastal Pasco neighborhoods and more.
Older homes are also at risk of premium hikes, as FEMA laid out a goal for all properties to have a rate reflecting their actual risk. That means that homes previously grandfathered into lower rates because they complied with more lax elevation standards at the time they were built, for example, will lose that benefit, according to Holehouse.
The owners of a 1,560 square-foot house built in 1973 in Holiday would currently pay about $3,900 for their flood insurance, one quote shows. Because of the changes, that’s expected to go up by more than $700.
• • •
Although Risk Rating 2.0 is a long-anticipated change, the specifics on how it would affect individual rates weren’t made public until Aug. 30. Only then were insurance agents able to start calculating how rates would change.
Paula Blanda, of All Risk Insurance in St. Petersburg, said many of the quotes she’s been running for clients recently have been “way high,” but she’s still learning more.
“I feel like I’m not going to know (the full extent) until after Oct. 1 and I’m running these all the time,” she said.
For homeowners renewing their policies, the final rates after their premiums are fully phased-in are expected to be listed on insurance bills.
Earlier this month, 38 bipartisan members of Congress, including Reps. Vern Buchanan, R-Sarasota and Charlie Crist, D-St. Petersburg, sent a letter to House leadership asking for a delay in the implementation of Risk Rating 2.0, to give their constituents more time to get answers to their questions and for the federal government to lower the cap on premiums.
“Our constituents are in desperate need of relief” from the upcoming increases, they wrote. “The additional burden of up to double digit rate hikes by FEMA for our constituents, especially those in low- and moderate-income communities is too much for them to bear.”
On Tuesday, Sen. Marco Rubio and lawmakers from other coastal states announced they filed a bill to delay the rollout of Risk Rating 2.0 to September 30, 2022.
FEMA data showed that around 80 percent of residents in Pinellas, Hillsborough, Pasco and Hernando counties would see increases to their flood insurance premiums, but for the vast majority, that increase would be less than $20 per month.
That news relieved Holehouse, who took it as a sign that rates would be changing in a way that “most people can handle,” he said.
Only later did he and others realize that the statistics didn’t show the full scope of the expected hikes, because they accounted for just the first year of Risk Rating 2.0 and did not include people purchasing new policies.
FEMA’s wording was “very precise,” Holehouse said. “But if you’re buying a house and you know flood insurance is $600 right now and it’s going to be $6,000, do you think of it as $600 or $6,000?”
• • •
Matt Carr, the owner of Winway Homes, a custom home-building company headquartered near Gulfport, has a client building a home on Clearwater Beach who expected to pay about $500 to $600 a year in flood insurance. Now, it could be around $8,000.
Unlike buyers purchasing homes with existing National Flood Insurance Program policies, who are able to continue paying on the existing plan, new construction requires entirely new policies starting at the new rates. That means they will pay the new rates without the benefit of an 18 percent annual increase to ease in the change.
“Some people when they build a new home, they’re overextending themselves,” he said. “So a family that’s retired and taking their life savings toward the building of the house ... this could cause a very adverse effect on their monthly income.”
People wanting to build houses in pricey coastal communities like Treasure Island or Tierra Verde will most likely be able to absorb the hikes, Carr said. He’s more concerned about people “all over Pinellas County that’s in that flood map who want to build new.”
He thinks the rate hikes are going to quicken a trend he’s already noticed: people selling their top-dollar waterfront estates for more inland properties.
That’s the worst-case scenario, said Pletcher, the St. Pete Beach city commissioner.
If the sticker shock of rising flood insurance rates causes St. Pete Beach to become a less desirable place to live, any resulting slip in property values would hurt the city’s ability to fund projects like raising sea walls and elevating public infrastructure to prepare for sea level rise.
“I just feel like when everyone is doing everything right for all the right reasons, it was so quickly changed,” she said.
Holehouse predicts the changes will cause people who aren’t required by their mortgage lender to carry flood insurance, like those who bought in cash or paid off their homes, to forgo insurance altogether — a risky proposition in a place like Tampa Bay that’s especially susceptible to storm surge during hurricanes.
He also anticipates a mass migration of policyholders into the private flood insurance market, which currently is dwarfed in size by the number of policies held by FEMA. How many people the private market can absorb is a question mark, he said, because insurers typically try to avoid clustering their policies.
“In fire insurance, if one house catches on fire, typically the rest do not catch on fire,” he said. But “if you write (policies for) 10 homes on a street, there’s a chance all 10 take a flood loss.”