Flood insurance increases still a peril

JERSEY SHORE, Pa. -- This small, central Pennsylvania river town doesn't have beach homes or boardwalks, but it shares more than a name with the famous stretch of New Jersey coastline 250 miles to the east.

Both are among the thousands of places around the U.S. where people could face trouble in the years ahead because of the rising cost of government-mandated flood insurance.

Earlier this month, Congress sought to ease their fears of sky-high premiums by rolling back a 2012 reform ending the government's costly practice of offering subsidized insurance for older homes and businesses in flood zones. The president signed the bill Friday.

But while the law was widely hailed as a victory for people who had seen their bills triple, quadruple or even increase 15-fold overnight, pocketbook pain for many has merely been delayed.

As many as 1.1 million policyholders with subsidized government insurance will still be hit with steady rate increases. While no one is sure yet how high rates will go, there is cause for worry in cities and towns that rely on affordable policies to keep businesses afloat and prop up the local housing market.

ADVANCE FOR USE MONDAY, MARCH 24, 2014 AT 3 A.M. AND THEREAFTER - FILE - In this Wednesday, June 18, 2008 file photo, Illinois Air National Guard member Jeff Turner, of Peoria, Ill. and others fill sandbags along the Mississippi River in Quincy, Ill. Policyholders who have long enjoyed subsidized rates under the debt-ridden National Flood Insurance Program will see premiums rise steadily in the coming years, despite a rate-relief law signed Friday, March 21, 2014 by President Barack Obama that will soften the blow for those who were hit hardest. (AP Photo/Seth Perlman)

Lifelong Jersey Shore residents Lurie and Michael Portanova bought up a row of quaint, 19th-century brick shops along the West Branch Susquehanna River and have been lovingly restoring them. They found out a few months ago that the annual flood insurance premium on two buildings they bought in 2012 had soared from less than $3,000 to a minimum of $26,868.

Now, thanks to the congressional rollback, that rate will reset to where it was before -- only to immediately start climbing again, year after year. Within five years, the bill will be more than $8,700. Within a decade, it will be more than $26,000.

"There's no way we can afford that. Just no way," said Michael Portanova. "We'd have to let it go back to the bank and walk away from it."

For years, people like the Portanovas relied on insurance that was far cheaper than the risks warranted. When Congress tried to stem the red ink by raising rates to reflect the real costs, people in the flood plains screamed -- and the politicians listened.

But many say even the adjusted premiums will soon be beyond their means, though the question remains: Will the government continue to subsidize insurance in places that are increasingly untenable as sea levels rise and storms become more severe?

The Associated Press analyzed records from the Federal Emergency Management Agency for roughly 18,500 communities in the National Flood Insurance Program where the government offers subsidized rates.

The data show there are communities in every state where even a few years of price hikes could leave many affected owners unable to afford their properties. Hundreds of small river towns and coastal communities with significant numbers of homes and businesses in flood hazard zones are at risk.

FEMA's records also show why there is pressure to raise rates. Some communities with a large proportion of subsidized properties have been tremendously costly for the flood program. But there are just as many places where those policy discounts have cost taxpayers almost nothing.

The reform law signed by the president rolls back portions of a 2012 overhaul that took away subsidies immediately for any property that changed hands or was remapped into a higher risk flood zone. Both groups will now be able to continue paying subsidized rates.

But at least 820,000 homeowners will still be hit with rate increases of up to 18 percent each year until the program is collecting enough revenue to cover a $24 billion shortfall created by a series of catastrophic storms.

Owners of another quarter million businesses or second homes will see their rates rise 25 percent each year, until their premiums reach rates that match the true risk of flooding.

There are indications that rising premiums already have had an effect. Records reviewed by the AP show that national enrollment in the insurance program dropped by nearly 80,000 in the 12-month period that ended Jan. 31.

The FEMA data sets analyzed by the AP show that 1,402 communities nationwide have at least 100 homes or businesses facing gradual price hikes. Of those, 765 communities have at least 200 policyholders who will steadily lose their discounts.

While the rate hikes will unquestionably affect the largest numbers of people in subtropical coastal cities like New Orleans, Miami and St. Petersburg, Fla., they also have the potential to deliver crippling blows to old river towns and port cities that have little in common with the eroding beach communities that have earned the flood program so much scorn.

The list includes places Brunswick, Ga., a port city where nearly 1,200 policyholders are set to gradually lose their subsidized rates.

The new legislation will offer temporary relief to people like Ray Bodrey, whose annual premiums had surged from under $700 to more than $4,700 before the rollback.

But if FEMA opts for an average increase of 15 percent each year, his annual payments would top $2,800 within a decade, and keep climbing -- rates he says will push the limit of what he can afford.

"It doesn't help me at all. We've still got the same problem," Bodrey said.

Congress created the National Flood Insurance Program in the late 1960s, in part because private insurers had abandoned the market. Today, in most places, it is the only option for buying flood insurance, which is required for most mortgages on any property in a flood hazard zone.

There are about 5.5 million policies in force today, about 20 percent of which are subsidized.

In its latest overhaul of the program, Congress tried to deal with the affordability issue by including language asking FEMA to "strive to minimize" the number of policies with an annual premium that exceeds $1 for every $100 in insurance coverage.

Yet, that suggestion would be impossible for FEMA to follow without giving huge new discounts to the many policyholders now paying well above that rate.

All of that adds up to a big question mark for homeowners.

How high will their rates ultimately go?

One FEMA-funded study, conducted in 1999, estimated that 550,000 homes across the country would see premiums top $6,800 per year if they were required to pay a premium based on the true flooding risk.