Rising cost of flood insurance inspires bill

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WASHINGTON — Thomas Drucis paid $1,300 last year for flood insurance for his financial management office in Bridgeville, but he’s been expecting a rate hike because of changes in federal law meant to help replenish the National Flood Insurance program, which has been drained thanks to Hurricane Katrina.

Mr. Drucis figured the worst-case scenario would be a doubling of his premium. He could handle that.

But when the call came last week from his insurance agent, Mr. Drucis was floored. She told him his annual premium was skyrocketing to $13,270.

“I practically fell out of my chair. I understand I’m in a flood plain. I understand my insurance is going to go up over time, but not 10 times at once,” he said in a telephone interview.

“This is the kind of thing that can put people out of business, and I’m not the only one. This is nationwide.”

A bipartisan group of senators — including Sen. Bob Casey, D-Pa. — are trying to help, and their bill could get a vote this week.

Sponsored by Sen. Robert Menendez, D-N.J., the Homeowner Flood Insurance Affordability Act repeals part of the Biggert-Waters Flood Insurance Program, which Congress approved last year to better align premiums with risk.

Starting Oct. 1, Biggert-Waters began gradually decreasing federal subsidies for most owners of properties in high-risk areas. They now face increases of 25 percent at each policy renewal, until rates reflect actual risk.

Mr. Menendez’s legislation would maintain that provision, but would delay a more drastic provision that abruptly ends to subsidies for primary residences and businesses purchased after July 6, 2012, and for new insurance policies purchased after that date.

Property owners like Mr. Drucis, who bought his building in January 2013 and thus had been receiving the subsidies, are feeling the full brunt. The effects are being felt nationwide, lawmakers said at a Capitol press conference last week.

“In my home state people who were paying $800 or $1,000 are now talking about paying $10,000. That’s simply unsustainable,” Mr. Menendez said.

Mr. Menendez and his supporters want to maintain the subsidies until the Federal Emergency Management Agency completes an affordability study and certifies that the maps it uses to assign flood risk reflect sound science and engineering methodology. The bill then calls for Congress to consider affordability measures such as targeted assistance to individual policy holders.

Opponents, including Sen. Pat Toomey, R-Pa., say the Menendez bill would unfairly require homeowners in low-risk areas to subsidize premiums of those in high-risk areas. He fears the subsidy encourages people to build in high-risk areas rather than other areas less prone to flooding.

Other opponents caution that delaying rate hikes would destabilize the National Flood Insurance Program, which already has a $24 billion deficit.

“We need to abandon this idea of delaying the reforms, and instead focus on modifying them to ensure that we move towards truly sustainable ways to bolster the flood program,” watchdog group SmarterSafer.org said in a statement last week.

Michael Hecht, president and CEO of the Coalition for Sustainable Flood Insurance, says the Biggert-Waters reforms are unfair. They “resulted in massive rate increases for policy holders who have built exactly as the government has told them and who have no history of flooding.”

His organization wants FEMA to have time to complete its affordability study and to make appropriate risk calculations when it determines flood risk.

“None of us want perverse incentives for building in harm’s way, nor do we advocate for continued subsidization” of properties that have repetitively sustained severe flood damage, Mr. Hecht said. “But we have a moral duty — we have an economic duty — to protect property owners that have built as government has told them and have been law-abiding Americans. These individuals should not lose their homes and should not lose their businesses.”

Mr. Casey said the rate hikes come at the worst time, as people are recovering from the recession and, in some cases, months of unemployment. He has been stumping for passage in both Washington, D.C., and in Pennsylvania, where he held a press conference Friday to highlight the effects on 1,700 Allegheny County residents.

“There’s no reason in the world anybody of either party should not be supportive” of the Menendez bill, he said.

Property owners like Mr. Drucis are eager for relief. Although he has no plans to sell, Mr. Drucis said the rate hikes are bad for the real estate because no one will want to buy property with exorbitant insurance rates.

“We’re having a nascent real-estate recovery. Do we really want to mess with that?” He asked.

The Realtors Association of Pittsburgh shares that concern, said its executive vice president, R. Dennis McClelland. His group wants FEMA to take the time to create sensible flood maps and to consider how subsidy reductions will affect the market and the broader economy.

“They need to come up with something that’s fair. It’s time for everyone to take a deep breath and do it correctly,” said Mr. McClelland of Green Tree.

Congress established the National Flood Insurance Program in 1968. The program, run by the Federal Emergency Management Agency, covers 5.6 million properties and takes in roughly $3 billion a year in premiums, according to the Congressional Research Service. While the government subsidizes the premiums, charging about 40 to 45 percent of cost, the policies are administered and sold through private insurers.

Most years, claims paid total between $600 million and $3.5 billion, but the payout amounts soared after devastation by three hurricanes — Katrina, Rita and Wilma — in a single year. With 213,000 claims filed, claims totaled $17.7 billion in 2005.


Washington Bureau Chief Tracie Mauriello: tmauriello@post-gazette.com, 703-996-9292 or on Twitter @pgPoliTweets.

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