Flood Insurance Rates, Like Sea Levels, Are Rising

Having a home in the Hamptons means being just a short drive or even a quick walk away from the shore, but proximity to the ocean comes with a cost: flood risk.

For peace of mind, homeowners can purchase flood insurance, but recent changes to the National Flood Insurance Program mean that premiums could rise significantly for many on the East End.

“A lot of times when someone buys a house out here, they’re going to be asked to buy flood insurance by a bank if they’re taking a mortgage,” said Kevin A. Luss of the Luss Group, an insurance and financial services agency in Southampton. “Oftentimes, that’s a homeowner’s or a homebuyer’s first experience with all the extra things they need to deal with if they are in a flood zone.”

Created by Congress in 1968 and managed by the Federal Emergency Management Agency, the National Flood Insurance Program allows property owners to purchase insurance protection, administered by the government, for flooding. The program provides about $1.3 trillion in coverage for more than 5 million policyholders in 22,500 communities across the nation.

“Everything changed when Sandy hit,” said Toni Quaresima of Morley Agency Insurance in Southampton. “There was a 100-year floodplain (a 1 percent possibility of a flood event) in effect until when Sandy hit.” But then places that had never flooded before flooded for the very first time, and the flood zones had to be changed, she explained. “From then, every year FEMA remapped [flood zones]. They look at the history, how many claims came in.”

After Superstorm Sandy in 2012, homeowners who were previously in designated low-risk flood zones were now in critical zones, Quaresima said. Some homeowners were even required to get an elevation certificate — a document that identifies a building’s lowest point of elevation — in order to get a better rate.

The annual cost for flood insurance, and peace of mind, was often under $1,000 until Risk Rating 2.0.

Risk Rating 2.0, according to the FEMA’s website, is a new methodology for determining insurance premiums. FEMA is updating the National Flood Insurance Program pricing to “communicate flood risk” and to prevent policyholders with lower-valued homes from paying more than their share while policyholders with higher-valued homes are paying less than their fair share.

New policies as of October 1 are subject to Risk Rating 2.0. After April 1, 2022, policy renewals will also be subject to the new pricing.

“The new pricing methodology is the right thing to do,” wrote the senior executive of FEMA’s National Flood Insurance Program, David Maurstad, in a press release. “It mitigates risk, delivers equitable rates and advances the agency’s goal to reduce suffering after flooding disasters.”

He added that the change is what’s needed in the age of climate change in order to build individual and community resilience. The agency, according to the press release, coordinated with the U.S. Army Corps of Engineers, U.S. Geological Survey and the National Oceanic and Atmospheric Administration along with experts from the insurance industry and actuarial science to develop the new rate.

“In fact, I have a webinar I have to take,” Quaresima said. “It’s changing the whole rating platform, how they are looking at zones, how they are going to rate the premiums. It’s going to change a lot of things.”

Policyholders across the country, including those in the Hamptons, are reportedly seeing a rise in cost for their flood insurance, though most rate increases are capped at 18 percent per year.

Flood insurance is just a cost that comes with living in a flood zone, Luss said, and he’s even seeing banks require flood insurance for homeowners who do not live in a flood zone.

“I’m seeing little cottages that are paying $750, let’s say. They’re going up to $2,000 in the Hamptons,” Luss said. “Flood claims are terrible. The risk of flood is so bad out here that some houses just stay on the market forever.”

Luss gets calls from people in the market to buy a new home who ask him for quotes for houses near the water.

“I may run it and I’ll say, ‘Geez, it’s a terrible area. It might cost $13,000 for you to own flood insurance,’” Luss said. “Then they’ll call me back six months later, and they never bought that house.”

For those without insurance, Luss recommends homeowners check fema.gov/flood-maps to see if their home is inside a flood zone. If it is, they should contact their insurance agent and ask for a quote. Depending on where the home is, it may be affordable.

“If you have a mortgage and you fall in a critical zone, the bank is going to require you to get flood insurance,” Quaresima said.

Those who do not own flood insurance, in a flood event, can take out a loan with FEMA.

“Even though you think you’re not near water, it doesn’t mean you do not have the ability to flood,” Quaresima said. “Proof is what happened lately with this nor’easter and the other storm that we had recently where the city got flooded like never before. A lot of people did not have flood insurance. So that’s all out of pocket.”

It never hurts to get a quote, she added.