More than 2,000 Rhode Island property owners, many whose houses or businesses came through Hurricane Sandy and the 2010 floods without a scratch, are now feeling the effects of those and other devastating storms.
Starting next month, the flood-insurance premiums they pay on their vacation homes and buildings will rise steeply in each of the next four years, in many cases costing them thousands of dollars annually.
The catalyst for the hikes is $24 billion in red ink weighing down the National Flood Insurance Program, which has been hammered by a steady stream of severe storms starting with Hurricane Katrina in 2005.
Since federal flood maps were created in the 1970s and 1980s, buildings built before then were eligible for vastly cheaper policies than those available for new buildings.
But to stop the program’s losses and reduce the taxpayer subsidy going to waterfront homeowners, Congress last year passed the Biggert-Waters Flood Insurance Reform Act, which begins phasing out cheaper policies for older properties, starting this fall with vacation homes, businesses and sites of repeat flooding.
For properties cut off from the lower rates, premiums will rise 25 percent each year until they reach the full-risk, or unsubsidized, rate, which will vary depending on factors such as the building’s elevation and vulnerability.
“If people are on fixed incomes, it could become burdensome,” said Michelle Burnett, National Flood Insurance Program coordinator for the R.I. Emergency Management Agency. “People could potentially lose their homes.”
For now, the cheaper policies for older houses will remain if they serve as a primary residence, meaning the person living there, owner or renter, spends at least 80 percent of the year there.
However, once any property in a flood zone is sold, primary residence or not, it is subject to the same premium increases as the commercial, vacation and repeat-claims buildings.
That’s sent a current of fear and uncertainty through the real estate market, especially in low-lying or coastal areas.
The owners of buildings without mortgages have the option of going without flood insurance, and taking on the risk of loss, if they can’t afford the new premiums, but lenders require flood insurance for mortgages on properties within a flood zone and there is no private underwriter.