Rising above flood-insurance costs

HEAD ABOVE WATER: John Tregenza, general manager of the Watch Hill Boat Yard in Westerly, says an empty ground-floor story will help protect the recently completed building in the event of flooding. The boatyard opted out of flood insurance. / PBN PHOTO/MICHAEL SALERNO
HEAD ABOVE WATER: John Tregenza, general manager of the Watch Hill Boat Yard in Westerly, says an empty ground-floor story will help protect the recently completed building in the event of flooding. The boatyard opted out of flood insurance. / PBN PHOTO/MICHAEL SALERNO

At its new elevation, the redesigned Watch Hill Boat Yard office and boaters’ lounge rests gracefully at the mouth of the Pawcatuck River near Little Narragansett Bay. The footprint is the same as the previous office that was built flat on the ground before the 1950s, but this new two-story structure has an entire one-story open space below the first floor.
“With the new building regulations, we had to elevate at least 4 feet to get to the required 13-foot elevation – we’re kind of on a knoll. But 4 feet would have just given us a crawl space,” said Watch Hill Boat Yard General Manager John Tregenza. “So by going higher, we have a full story on ground level. It’s not habitable space, but we put picnic tables under there and we can keep our dock carts there.”
There’s a purpose to this elevation, in addition to Westerly’s building regulations.
“We decided not to buy flood insurance. We’re flood-proof,” said Tregenza. “In the event of a flood, the water would rush through that first level. All the mechanicals are on the second level.”
Elevation is one of the options in the new reality that’s come with the redrawing of Federal Emergency Management Agency flood maps, which are being phased in, and the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012 that went into effect in October 2013. The latter was intended to put the Federal Flood Insurance Program on solid footing after it was drained by Hurricane Katrina and other disasters, although some provisions of that act were recently delayed by Congress.
Businesses that had subsidized premiums now will have a 25 percent increase in premiums every year until it reaches the actuarial, or full-risk, premium rate, according to Peter Gibb, senior vice president and personal-lines manager for Starkweather & Shepley Insurance Brokerage Inc.
A bill under consideration in the Senate last week would delay rate increases for up to four years. The House has yet to act on the measure, called the Homeowner Flood Insurance Affordability Act. Under current law, “If a business is getting a new policy, they need an elevation certificate,” Gibb said. The changing regulations and rising cost of flood insurance as federal subsidies phase out require businesses, as well as homeowners, to research, plan and examine the numbers carefully when it comes to rebuilding, expanding, buying or selling a commercial property.
The Watch Hill Boat Yard rebuilding project didn’t require bank financing, so it didn’t require flood insurance.
The value of the new building is one factor in the decision not to get a flood- insurance policy.
“Our insurance company made sure we knew about flood insurance. The quote we got was $14,000 a year for flood insurance, with a $50,000 deductible and limited to $500,000 in replacement costs,” said Tregenza. “The building is worth more than $500,000.”
Though it wasn’t an issue for the Watch Hill Boat Yard, zoning changes tied to the new flood maps can bring higher flood-insurance costs.
“What could happen with the flood maps is that a business could have been in a low-hazard flood zone and a change in the map could suddenly put it in a high-hazard zone and that triggers a notice from the lender,” said Dave Riley, who handles commercial lines and other types of insurance at John Andrade Insurance in Warren.
The flood-insurance changes haven’t really been noticeable with his commercial customers yet, said Riley. But expansions or changes in ownership will kick those changes into effect.
“On new policies, the subsidy has ended for all buildings in a high-hazard flood zone.” said Riley. “That’s the killer.
“Until now, if I had a commercial property on Water Street in Warren, I could buy a flood-insurance policy under a subsidized rate and I might pay $3,000 a year,” said Riley.
Elevation is a major issue in towns like Warren with long-established businesses and low-lying areas.
“Virtually every building has a basement and you have to measure down to that basement for the elevation certificate,” said Riley.
The federal subsidy for flood insurance used to be routinely transferred to the new owner, and that’s ended, which adds another challenge for sale of commercial property, he said. One of the less-expensive solutions could be that businesses will start filling in basements to gain some elevation, he said.
“Overall, when businesses are going to be facing the transfer of their business or remortgaging of their business in a flood plain, they’re looking at some potentially astronomical costs for flood insurance,” said Riley.
A recommended first step is getting a flood-elevation survey, because an inexact look at the FEMA flood maps could be initially misleading, said civil engineer and licensed professional surveyor Donald Medeiros, who owns Able Engineering in Little Compton.
“My business started to ramp up about two months ago because of the latest round of flood maps coming out,” said Medeiros.
While the majority of increasing work in elevation certificates is residential, Medeiros said, he does do elevation certificates for businesses, including one recently for Dutch Harbor Boat Yard in Jamestown.
“We just closed on the boat yard on Jan. 17,” said the new owner Joe McGrady. When we started to go through financing for the boat yard, the first quote we got for flood insurance was $66,000 a year. It was kind of shocking.”
From an attorney, McGrady got a recommendation to check with Starkweather & Shepley Insurance Brokerage Inc., and they recommended getting the elevation certificate. The elevation certificate and closer examination of the requirements led to a policy for about $20,000 year, still a bite, but doable.
Starkweather & Shepley held several seminars in October and collaborates with the Rhode Island Association of Realtors to provide information on changes in flood insurance, said Gibb.
“The flood map considers areas prone to 100-year flooding and all that has changed and includes much broader areas,” said Gibb. “Especially in areas of Warwick, Barrington and Warren, there are huge differences in the new flood maps … [and] the changes in insurance premiums can be substantial.” •

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