Insurance costs rise along with water levels

 

 

Sandy gave preview of climate-change impact

The Lowell Sun

 

By Francesca Barbato and Alexandra Shi The Boston University Statehouse Program  BOSTON -- Massachusetts coastal and riverside property owners are facing a double threat from rising sea levels.  The extensive damage to coastal New Jersey and sections of New York City caused by last year's Superstorm Sandy is being called a preview of what Massachusetts will face sometime in the future.  But another storm is already breaking for many along the state's coast and rivers in the form of rising property-insurance premiums. These costs are likely to surge into adjacent areas of the state as a federal insurance program, often the last resort for waterfront residents, sets higher rates and extend flood plain designations to neighborhoods and towns once considered safe.

 The projected effects of climate change and the resulting escalation of insurance rates will affect more coastline dwellers. State officials and real-estate experts fear long-term ramifications on property values, tax collections and the construction business.  "It's hurting our Massachusetts builders. It's hurting our Massachusetts realtors," said Rep. James Cantwell, D-Marshfield, who has taken a lead role in challenging the federal insurance changes. "They can't sell their homes, and people aren't buying because there's so much uncertainty about what their rates are going to be for their flood insurance."  Commercial insurance rates have been climbing based on predictions of rising sea levels and concerns about bigger, more frequent storms like Sandy, which caused $19 billion worth of damage to New York City and $29.4 billion to New Jersey last year.  According to the National Hurricane Center, Sandy was the second most costly tropical storm on record, after Hurricane Katrina in 2005. Meteorologists say that if the storm had pushed further north and hit the Massachusetts coastline at high tide areas of Boston and the South Shore would still be recovering.  Flood-map projections show that Boston's Back Bay would have been underwater and Cambridge's Harvard Square would have suffered extensive flood damage. Quincy and Everett would also have suffered extensive flooding.  A Sandy-like storm would cause an estimated $12.4 billion in damage, according to Corelogic Inc., an Irvine, Calif., consulting firm that provides data to insurance companies.  Riverfront communities also are at risk. Various studies predict that within 25 years, Boston could experience the current 100-year flood along the Charles River on an average of every two to three years. The same fate is in store for communities along the Charles, Indian Head River, Taunton and Sudbury rivers to name a few.  Such projections have led property-insurance companies to raise insurance premiums to levels steadily in recent years. More and more homeowners face sticker shock with each new premium. Lowell residents in the Pawtucketville neighborhood, hit hard by the floods of 2006 and 2007, are getting slammed by the flood-insurance premiums.  "After the mid-2000 floods, some of my neighbors went from $3,000 a year up to $7,000 a year, and they have no way out because they're paying mortgages," said Deb Forgione, chairwoman of the Pawtucketville Citizens Council. "To even sell a house with that kind of premium is a huge challenge.  "With the threat of another flood hanging over our heads, it's hard to work with insurance companies to lower the premiums," added Forgione, who lives on Townsend Avenue in Pawtucketville. "The closer floods are together, the higher premiums will go. It's a major impact on the area."  Some Pawtucketville residents are senior citizens on fixed incomes, so they're unable to afford flood insurance, she added.  "It's pretty risky without the insurance, but it's impossible for them with how high the rates are," Forgione said.  While news reports have singled out dramatic rate increases of up to 1,000 percent, Bob Desaulniers, a New England Federal Emergency Management Agency insurance specialist, said most affected property owners can expect to see on average increase of 25 percent in their yearly premiums - a hike of several hundred dollars a year.  Desaulniers said older homes those that suffered repetitive losses will face the sharpest increases.  "There shouldn't be any wild, crazy jumps," he said, "But a higher percentage of homes in New England are older."  Insurance costs will also escalate as the result of the 2012 Biggert-Waters Flood Insurance Reform Act, which requires the government-subsidized National Flood Insurance Program to increase insurance premiums on many coastal properties to more accurately reflect the rising risk.  The federal program, which had to borrow some $20 billion from the U.S. Treasury to cover losses from a series of big storms since 2005, covers 60,185 insurance policies representing a total premium of over $74 million in Massachusetts, DeSaulniers said.  The number of affected properties is likely to grow. Biggert-Waters requires FEMA to redraw flood plain maps to better reflect future risks. Although the new requirement won't go into effect until February 2015, preliminary maps released last month added more real estate to the high-risk zones.  Quincy had nearly 1,300 structures added to FEMA's Special Flood Hazard Area. Marshfield saw 1,500 structures moved into the flood zone.  Inland areas along the state's rivers have been designated in the more expensive, high-risk zones. Framingham and Ashland, which are on the Sudbury River, have had about 100 properties reclassified to high-risk flood areas. Acton, which lies on the Assabet River, has seen an additional 108 properties added to the special flood hazard area.  State officials fear the steady insurance increases -- along with the spread of affected properties -- will put the insurances costs of some homes beyond the range of their owners. Property values could fall and construction of new houses could drop as a result.  "We're truly going to see people losing their homes, not from floods, but from flood insurance," House Speaker Robert DeLeo, D-Winthrop, said after a meeting with House Democrats in October.  While there is no hard evidence of a drop in real-estate prices in Massachusetts yet, data from another at-risk state suggest it is possible.  A 2011 University of South Florida study of real-estate sales in that state found that homes located in a flood zone typically sell for less than homes outside the zone.  When a home is placed in a flood zone and the property's insurance premium increases, the study found that the sale price of the home decreases significantly.  Cantwell fears Massachusetts could face similar trends.  "Real estate is a huge part of the economy," he said. "People who live along rivers, lakes and oceans, your property value could plummet."  As state and federal legislators work to delay implementation of Biggert-Waters and offset its impact, some municipalities and individual homeowners are taking steps to mitigate potential storm damage and blunt rising insurance costs.  Specialty construction companies report an increase in interest from homeowners considering ways to move their properties out of harm's way and beyond new, costly insurance flood-map designations.  Some are considering moving their homes to higher ground. Others are looking at "freeboarding," a process of raising homes an additional two feet above new flood-plain levels.  Seacoast communities are updating regulations and offering incentives to homeowners and builders to flood proof new and existing structures. Hull offers a $500 break on building permits to those who build foundations two feet higher than flood-plain elevations.  Boston now requires builders to place essential mechanical structures, such as heating and electrical units, in higher floors rather than the usual basement location. Some property owners are making such changes on their own.  In other cases, communities such as Winchester and Lowell are using federal grants to buy up and demolish riverside properties that have experienced flood damage in the past, creating new parkland zones to absorb the impact of floods.  Despite the individual town efforts, Curt Spalding, the Environmental Protection Agency administrator for the New England region, said only 5 percent of New England communities have addressed flood risks.  Spalding said if homeowners and communities take action now, insurance costs would drop and damage from future storms would be reduced.  "There are a lot of approaches that can be used, but they (communities) have to get proactive," Spalding said. "This is going to get very expensive if we wait."
Barbato and Shi are students in The Boston University Statehouse Program. This story includes additional reporting by students Gina Curreri, Lisa Hagen, Alex Hyacinthe, Carol Kozma, Yuan Ma and Loren Savini. Sun reporter Rick Sobey also contributed to this story.