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Flood Insurance Rules Are Changing, But Some Say Not Enough

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TOWN OF STRATFORD
Flooding in Stratford town center during Tropical Storm Ida.

Lee Forsyth knows the drill a little too well. When it looks like a storm is heading for his Stratford home, a few houses up from the beach in the Lordship section of town, he slides foot-high slats in front of the garage doors, puts two layers of sandbags inside the doors and runs a hose down the garage floor drain.

The final step is crossing his fingers.

“None of this will count for anything with a real storm,” he said after completing the usual preparations in advance of Ida, the state’s third tropical system in a six-week span this summer.

With flood insurance costing him around $3,000 a year, what Forsyth would really like is to elevate the house and knock down that bill. But FEMA, the Federal Emergency Management Agency, has turned him down twice for a subsidy because his flooding hasn’t been severe enough — probably because of the mitigation strategies he’s employed.

“I almost feel like I’m being penalized for going above and beyond,” he said.

And for all his effort, it’s now possible he’ll be facing higher flood insurance rates.

That’s because FEMA is rolling out a new flood insurance premium assessment system — Risk Rating 2.0 — that kicks in for new policies on Oct. 1. Existing policy renewals will switch to the new system beginning April 1, 2022.

But exactly how the new system works and what it means for individual property owners like Forsyth is murky. Even state officials who are experts in the federal flood insurance program are confused.

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LEE FORSYTH
Lee Forsyth has a system for protecting his home from flooding, including this drain and sandbag system just inside the barricaded garage door. He hasn’t flooded, but his contraption may have prevented him from getting federal funds to elevate his home.

“It’s a black box,” said Diane Ifkovic, who oversees flood insurance at the Department of Energy and Environmental Protection and is considered the state’s go-to authority on all things flood insurance.

Despite the lack of clarity, the new system is already eliciting criticism that FEMA has missed an opportunity to overhaul the fundamental paradigm of the National Flood Insurance Program (NFIP) that has existed since its inception in 1968 — providing money after a flood to put things back roughly where they were before the flood.

With climate change whipping storms into bigger, stronger, wetter, windier and more frequent events, the notion that just changing the premium system will be enough to lower the climate change flood risk to homes near the water on the shoreline and inland has elicited similar comments from multiple experts: It’s a good start, but not enough.

“Risk Rating 2.0 is a good step forward, but that’s all it is — a step forward,” said Steven Rothstein, managing director of the Accelerator for Sustainable Capital Markets at Ceres, a sustainability investment nonprofit.

“There’s more that needs to be done to plan for the physical risk that we’re seeing more and more,” he said, referring to July’s designation as the hottest month on record. “We are literally running out of records to break.”

But he said it’s not a matter of just dumping the 53-year-old system. “We need to look at both a set of incremental approaches as well as some bold ideas that are different.”

Rather than rely on the financial incentive of increasing flood insurance premiums to get homeowners to make the kinds of changes that would make their homes more resilient to climate change generally and sea level rise in particular, many say the bolder ideas would be to keep the flooding from happening in the first place as well as finding newer insurance models the would streamline and speed up the claims process when floods do happen.

Some of those bold ideas would be up to Congress to approve. But in recent years, federal lawmakers have reauthorized NFIP only after a couple of failed attempts in 2012 and 2014, when the real estate industry went ballistic, that included steep premium increases. Members of Connecticut’s congressional delegation were among many that had initially supported the changes but then sided with the real estate industry.

An eleventh-hour effort to delay Risk Rating 2.0 implementation began in the last couple of weeks, with letters to FEMA from legislators in New York, New Jersey, Louisiana and other flood-prone states. Connecticut did not participate this time. FEMA is reported to have refused to delay.

This time, real estate industry reaction is somewhere between muted and non-existent.

“For us, it’s a sit and wait period,” said Michael Barbaro, a broker who handles shoreline properties and a former president of the Connecticut Association of Realtors. He said buyers do ask if properties are in a flood zone.

When the answer is yes? “Click. Hang up the phone,” he said.

What worries him is the uncertainty around the new system. “My buyers — they don’t have an appetite for uncertainty.”

While Risk Rating 2.0 is still arguably the most dramatic change to flood insurance in its history, some still wonder why FEMA did not opt for more foundational changes to fulfill the basic NFIP mission, as stated in a Congressional Research Service report released this summer.

“The general purpose of the NFIP is both to offer primary flood insurance to properties with significant flood risk and to reduce flood risk through the adoption of floodplain management standards. A longer-term objective of the NFIP is to reduce federal expenditure on disaster assistance after floods,” the report read.

And that expenditure is considerable.

Government Accountability Office reports in the last two years noted that as of a little more than a year ago, FEMA’s debt was $20.5 billion, despite Congress having canceled $16 billion in debt in October 2017.

And many wonder why 2.0 doesn’t do more to address inequity on shorelines, which are rapidly becoming the domain of wealthy owners who can afford to rebuild each time they are crushed by storms while pushing out lower income residents who can’t.

The black box

Risk Rating 2.0 all but retires the 50-year standard for determining flood risk and insurance premiums — flood maps. They’ll still be around, along with base flood elevation, a standard for the height at which flooding is likely to occur. But they’ll mostly be used for municipal planning and to indicate properties that must have flood insurance if they have mortgages or certain other federally backed loans.

Instead, FEMA will use higher tech measurements to rate property risk than it has used in the pastFEMA will also use a suite of factors it hasn’t used before, including distance from the water, types of flooding — inland or coastal, frequency of flooding, ground elevation, first floor height and number of floors, construction or foundation type, the cost to rebuild, prior claims and more.

“They’re factoring it inside that black box, and we’re not exactly sure how it’s being spit out the other side,” said Ifkovic, who has repeatedly questioned how FEMA measures distance to the water. “We’re all kind of waiting, to be honest with you.”

“Before it was pretty clear what they were using. You had a map with a number on it. You had your floor elevation and that was about it. Now there’s that other stuff in there,” she said. “What’s the percentage of how that’s weighted?”

FEMA would not provide anyone to answer questions, offering via email only general information largely taken, in some cases verbatim, from their website.

What is clear from the FEMA website is that the vast majority of U.S. property owners with flood insurance will see their premiums go up the first year. Rates could increase by as much as 18% a year until they reach actuarial rates, but there’s no time limit, and the actuarial rates could fluctuate. More specifically, 66% of policy holders will see premium increases of about $10 a month in the first year, 7% will see increases of $10-$20 a month, and 4% will see increases above $20 a month.

Roughly 23% of policy holders will pay lower premiums, according to FEMA’s data, and current policyholders whose rates will go down may be able to switch to that lower rate at their next renewal.

FEMA also provides breakdowns by state. In Connecticut, premium decreases are expected to be higher than the national average — 37%. But the highest increases in Connecticut are expected to be higher than the national average — 8% in the $10-$20 range and 9% in the more than $20 range. Forty-six percent fall in the up to $10 per-month-increase category.

In Stratford, slightly more than half of policy premiums will increase, almost all of them in the smallest category — up to $10 per month. The rest will decrease — 40% of them by the largest category of decline. Other shoreline communities are looking at high rates of increase. In Milford, the number of policy holders who see premium increases could top 70%, while Bridgeport and Branford could reach 60% or higher.

But higher flood insurance premiums aren't just limited to shoreline properties. Those who live along large inland waterways, such as the Connecticut River, will also pay more. In Middletown, for instance, more than 92% of policyholders could be looking at premium increases, including 2.6% that will pay an additional $100 per month.

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JOE AMON
Shoreline properties aren't the only areas at risk from flooding as climate change worsens. The Pequabuck River overflowed its banks on Sept. 2 in the aftermath of Hurricane Ida, flooding Black Bear Auto in Bristol.

That data, however, masks data showing that participation in the national flood insurance program in Connecticut has decreased steadily since a small increase that followed Irene and Sandy in 2011 and 2012, respectively. The reasons are unclear.

One possibility, experts say, is that property owners are using private insurance, which is available, though not widely. Another is that lower-income owners have been pushed off the coastline due to rising costs and those coming in are wealthy enough to pay cash for homes. That means even if they are in a flood zone, they would not be required to have flood insurance. And another is that until this summer, flooding events had fallen off and people with non-mandatory policies may have dropped them.

George Bradner, director of the property and casualty division of the Connecticut Insurance Department, said FEMA may have missed an opportunity with 2.0 to devise more inventive ways to structure flood insurance in the face of climate change. But, he said, FEMA’s plan as part of Risk Rating 2.0 to provide informational risk scores to homes just outside the 100-year floodplains was a good move, since about 25% of flood losses typically happen outside that floodplain. He hoped it would get those homeowners to purchase flood insurance on their own.

“And I hope banks will start saying ‘I want you to have flood insurance because even though you’re not in the floodplain — you have a higher risk,’” Bradner said. “Get out of the mantra, 'You’re not in a flood zone, you don’t need flood insurance.' We have to stop that conversation.”

Bradner also likes FEMA's decision to include replacement costs as a criteria in the premium formula.

“A person that’s living in a $200,000 home was paying the same price for their flood insurance as a person living in an $800,000 home. So the rates for homes of higher value are going to be more reflective of the value of the higher value property, versus someone that’s in a lower value property that was paying the same rate,” he said.

But he’s less thrilled about the potential for up to 18% premium increases every year.

“It gets to the point — when does affordability become an issue? And Connecticut already has some of the lowest up-take rates for flood insurance in the country. Will it just compound the problem?” he said.

Another thing he’s not too happy about is that FEMA still isn’t including sea level rise in its flooding calculations. That’s one of several high-profile considerations many folks think were left out of 2.0.

What’s missing?

That FEMA does not include sea level rise in its flood maps or insurance calculations has been a point of dispute for several years. On one hand, the argument goes, sea level rise is an estimate, not a certainty of how high the water will go.

But, as Bradner points out, if you mandate an elevation to a structure without considering sea level rise, that elevation may be useless in a period of time far shorter than the structure should have lasted.

It may be partly a fundamental failing of the component of insurance that looks at history as a way to gauge the future. It’s been likened to driving a car with the front windshield blacked out and two actuaries looking out the back window telling you where to go.

Insuring for climate change requires planning for the future, not planning based on history. But with sea level rise a long-term problem and flood insurance policies issued yearly, how to mesh the two is difficult.

Another part of the flood insurance universe that FEMA did not address when it overhauled premiums is the Community Rating System (CRS), much to the chagrin of just about any municipality that’s ever used it.

The CRS establishes municipal guidelines for a number of resiliency measures designed to prevent flooding and thereby reduce the number of insurance claims. Depending on the success of the resiliency measures, which the town pays for, all flood insurance holders will get a discount — anywhere from 5% to 45%. Measures can be as small as minor structural changes to flood-proof buildings and annual inspections of drainage system components to larger, more complex improvements such as more robust stormwater management and the acquisition and relocation of buildings.

But the documentation due to FEMA every five years is hundreds of pages, and the overall program often requires the kind of expertise, such as a floodplain manager or a town planner, that small communities don’t have. Of the 1,500 communities that participated in the program nationally, only 19 are in Connecticut. Just about two-thirds of those 19 are on the shoreline, fewer than half of all shoreline towns. New Haven has the largest discount — 15%. The rest top out at 10%.

Ifkovic said she doesn't blame towns for not participating, given the amount of work entailed. The Western Council of Governments (WCOG) decided to help out several years ago, grouping four towns — Greenwich, Darien, Norwalk and Danbury — and applying for them. But WCOG found the process so onerous, they gave up.

“It was a huge lift,” said Mike Towle of WCOG. “A bigger lift than we realized.”

While there have been some updates to the latest CRS manual, towns would like to have seen a more user-friendly process incorporated into the new flood insurance model or some more efficient way, such as regional configurations or state-run assistance, to get more communities to use it. In the long run, it can help lower flood risk, which in turn would put less stress on the insurance itself.

Other adjustments that were not made that come up for discussion frequently include stricter repercussions, including prohibition from even getting flood insurance for properties that flood frequently — those known as repetitive loss or severe repetitive loss. Those categories are determined by frequency of flooding and payout levels on claims.

And there continues to be discussion about whether the parameters for mandatory flood insurance should be expanded. A GAO report released in July recommended such action.

The Association of State Flood Plain Managers is also advocating for expanding the mandatory purchase requirement. And they’re pushing for changes to the NFIP minimum standard of using base flood elevation. The organization, along with the Natural Resources Defense Council, have filed a petition under the Administrative Procedures Act to begin updating those minimum standards.

“We know we can do better; we have to do better from a resiliency standpoint if we expect our houses, our businesses and our infrastructure to withstand the changes in our flood risk over the next 100 years,” said Chad Berginnis, ASFPM executive director, who still said 2.0 was “drastically needed.”

And he said it will help people along shorelines and rivers better understand their true risk.

“Often so many people … they look at the FEMA flood map and think it’s the end-all, be-all totality of their flood risk,” he said. "At the federal level, we have got to make sure our programs don’t reward stupid behavior. If all you could do is repair or replace back to the original condition — well, that’s stupid.”

The proposed and the theoretical

The real key may be to prevent or lower the risk of flooding through pre-disaster mitigation — steps homeowners and municipalities can take, such as elevating a house or moving a wastewater treatment plant. The Biden administration is already throwing a lot of money at that sort of thing.

It will be up to Connecticut to figure how to get some of it.

Three programs are slated for infusions of funding. One is the Hazard Mitigation Grant Program (HGMP), with an influx of $3.46 billion, which allows states that receive major disaster declarations due to COVID-19 to use 4% of it for large climate mitigation projects.

Biden wants to double the $1 billion budget for Building Resilient Infrastructure and Communities (BRIC), a program to reduce vulnerability to natural hazards like flooding. But the administration is looking for shovel-ready projects, which Connecticut has struggled to provide.

And about $160 million would go to the Flood Mitigation Assistance program, which is targeted at reducing repetitive loss risk for properties covered by the NFIP.

The administration also is targeting at-risk communities with these efforts.

But none of these programs or the insurance overhaul itself adopt any of the new, break-the-mold ideas coming from risk and insurance experts.

The Wharton Risk Management and Decision Processes Center at the University of Pennsylvania has churned out paper after paper on flood insurance issues, including many that focus on the low- and moderate-income community and others who are least able to absorb flood recovery costs, never mind pre-disaster mitigation.

One publication, Improving the Post-Flood Financial Resilience of Lower-Income Households through Insurance, outlines several policy options. Among them: parametric microinsurance. It’s a lower-cost approach that sets a threshold, such as wind speed in a hurricane. Once the threshold is met, money is immediately made available, though not as much as traditional insurance.

“Because it’s using a more modern technique, you can essentially have the process be automated and people could even get a payout to their cellphones,” said Helen Wiley, a co-author of the paper and a policy analyst and project manager at the Risk Center. “In order for it to be cheaper, you don’t get rate adjustments. You get X amount if the thresholds are met.”

This approach is already in use in developing countries and other emerging economies. Puerto Rico has implemented new regulations essentially to create a microinsurance market.

“If it were done right, you would have it such that you use a microinsurance policy, and more people could go this route and have some money after the disaster,” Wiley said. “It would be a mechanism to help prevent people from going further down the cycle of being worse off after every event.”

The paper also suggests finding ways to help lower-income households do pre-disaster flood mitigation, such as elevating a home's mechanicals or installing drainage through grants; discounts; use of less costly techniques and public-private partnerships. They, in turn, would result in lower flood insurance costs. It also examines several community-based models, including having the municipality buy a group policy for use by low-income households, set up local programs to help pay for insurance or provide other financial incentives, such as property tax reductions, to induce people to purchase flood insurance.

The paper notes that North Carolina is piloting a program that provides premium assistance for qualified households to buy federal flood insurance. Portland, Ore., and Syracuse, N.Y., have also tried municipal incentive programs to help lower mitigation costs and other expenses.

“The challenge of course is I don’t think there’s one solution,” Wiley said. “I think having more programs that are tailored specifically for the LMI (low and moderate income) community is what’s going to make sense.”

Bradner at the Connecticut Insurance Department has talked for years about insurance models that use incentives for proactive local and state governments.

“It doesn’t do any good to have one person elevate their house and everyone around them does nothing,” he said, recalling a Texas house on stilts that survived a flood while everything around it was obliterated. “That person doing their duty protected themselves but, at the end of the day, their house is probably worth nothing. So this really has to become a community effort.”

He’s intrigued by the Wharton ideas. “Since an entire community can suffer economically when a portion floods, if communities could come up with a way to asses all residents within that community — and obviously it would be weighted towards the greater your risk, the more that you would be assessed — but everyone would be contributing to this policy. Even those with greater risk can pay less because it would be community-based pricing,” he said.

“Let’s put our toe in the water and start having these conversations.”

But those conversations can also run headlong into reality.

Real-time on the ground

“It’s important to look beyond the flood insurance program. There are limitations to a flood insurance program,” said Laura Lightbody, project director for the Flood-Prepared Communities program at the Pew Trusts.

She thinks the mitigation investment the Biden administration is making shows the federal government is thinking about risk more broadly.

“It’s important what FEMA’s doing. This [Risk Rating 2.0] is the first and most profound change to the rate-setting system that has happened in decades, and it will be the best and most modern version of a rate-setting system that will reflect today’s risk,” she said. “I think what’s important is that we couple it with other parts of a comprehensive flood risk reduction program.”

That, she said, means “money for pre-disaster mitigation coupled with a real means-tested affordability program paired with Risk Rating 2.0.”

She pointed to the CRS as a great candidate for overhaul, saying it needs a stronger incentive mechanism.

She and others point out that a lot of what drives flooding situations are local policies and rules, so communities should think about updating floodplain, zoning and land use regulations. And they need to make some hard decisions.

“I feel like we’re talking out of both sides of our mouth here,” she said. “We cannot continue to subsidize and bail out beach houses and repetitive loss properties while at the same time we say we cannot continue to keep people in the way of climate change.”

Fairfield has had its share of flooding woes with swamped low-lying beach neighborhoods. They are now dotted with dozens of elevated homes along many still low-lying roads.

“Keep in mind when we talk about insurance — who does it impact the most? The private property owner. But flooding is a public-private problem, because it’s not just the house and the property it sits on, but it’s how do you get there,” said Emmeline Harrigan, Fairfield’s assistant town planner, who said she’s pleased with the Biden administration's mitigation effort. But she said the insurance changes are just wait-and-see at this point.

“I think the owner has to be responsible for what’s private for them, and the towns have to figure out how to improve drainage and figure out how to do all those other public projects where they can. Not everything is solvable.”

Sometimes it feels like almost nothing is solvable to Susmitha Attota, the town planner in Stratford.

While Stratford developed a coastal resilience plan five years ago, Attota is reminded constantly of how much effort and time it takes to make the kinds of changes that will help make Stratford — a town that faces flooding from Long Island Sound and two rivers — more resilient.

In 2017, the town applied for funding to build an additional dike around its water pollution control facility, which sits a parking lot away from the Sound and came close to flooding in storms Irene and Sandy. In 2020, they finally heard they would get funding for one-third of the $7.5 million cost. “But it took so long, it will probably cost more,” she said.

Last year, it applied for BRIC funding for a berm that would help with flooding in other areas but got turned down.

But it’s the effort to elevate three homes — including Lee Forsyth’s — on Washington Parkway that continues to drag on. A joint application in 2018 to elevate all of them was turned down. Then the town reapplied for each individually, and one that was considered a severe repetitive loss property was approved. But it’s unclear how much that homeowner will get. In the meantime, the owner has spent her own money on preliminary drawings, hoping to someday be reimbursed.

“One single property took us three years of hard work back and forth,” Attota said. “I have no idea how to expedite the process, but something has to be done.”

“The homeowner is frustrated. We have to communicate to the state, the state has to communicate to FEMA, that’s the chain right now,” she said. “There’s also a matter of equity. Imagine if she was a low income homeowner — would she have the time and resources and the patience to do something like this?”

Ida dumped 8 inches of rain on Stratford. And while streets flooded all around town and the lot next door was under water, Lee Forsyth's contraptions worked one more time.

Even so, the town will be applying a third time on his behalf for money to elevate his home. If he gets this one, he’ll have to pay 25% of the cost — which is fine with him — fingers crossed, again.

Kasturi Pananjady contributed to this story.

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