The Cost of Insuring Expensive Waterfront Homes Is About to Skyrocket

Florida’s version of the American dream, which holds that even people of relatively modest means can aspire to live near the water, depends on a few crucial components: sugar white beaches, soft ocean breezes and federal flood insurance that is heavily subsidized.

But starting Oct. 1, communities in Florida and elsewhere around the country will see those subsidies begin to disappear in a nationwide experiment in trying to adapt to climate change: Forcing Americans to pay something closer to the real cost of their flood risk, which is rising as the planet warms.

While the program also covers homes around the country, the pain will be most acutely felt in coastal communities. For the first time, the new rates will also take into account the size of a home, so that large houses by the ocean could see an especially big jump in rates.

Federal officials say the goal is fairness — and also getting homeowners to understand the extent of the risk they face, and perhaps move to safer ground, reducing the human and financial toll of disasters.

“Subsidized insurance has been critical for supporting coastal real estate markets,” said Benjamin Keys, a professor at the University of Pennsylvania’s Wharton School. Removing that subsidy, he said, is likely to affect where Americans build houses and how much people will pay for them. “It’s going to require a major rethink about coastal living.”

The Biden administration’s new approach threatens home values, perhaps nowhere as intensely as Florida, a state particularly exposed to rising seas and worsening hurricanes. In some parts of the state, the cost of flood insurance will eventually increase tenfold, according to data obtained by The New York Times.

For example, Jennifer Zales, a real estate agent who lives in Tampa, pays $480 a year for flood insurance. Under the new system, her rates will eventually reach $7,147, according to Jake Holehouse, her insurance agent.

And that is prompting lawmakers from both parties to line up to block the new rates, which will be phased in over several years.

“We are extremely concerned about the administration’s decision to proceed,” Senator Bob Menendez, a New Jersey Democrat, and eight other senators from both parties, including Majority Leader Chuck Schumer, Democrat of New York, wrote in a letter to Deanne Criswell, the FEMA administrator, on Wednesday.

‘Our New, Wet Reality’

Created by Congress in 1968, the National Flood Insurance Program is the primary provider of flood coverage, which often isn’t available from private insurers. The program is funded by premiums from policyholders but can borrow money from the federal treasury to cover claims.

The average annual premium is $739. Until now, the Federal Emergency Management Agency, which runs the program, has priced flood insurance based largely on whether a home is located inside the so-called 100-year flood plain, land expected to flood during a major storm.

Flooding from Tropical Storm Eta in Gulfport, Fla., in 2020.Credit…Martha Asencio Rhine/Tampa Bay Times, via Associated Press
Jake Holehouse, a flood insurance advocate for Pinellas County, says the way FEMA is talking about the pricing changes is misleading.Credit…Eve Edelheit for The New York Times

But that distinction ignores threats like intense rainfall or a property’s proximity to the water. Many homeowners pay rates that understate their true risk.

The result has been a program that subsidizes wealthier coastal residents at the expense of homeowners further from the water, who are more often people of color or low-income. That masking of true costs has also increased demand for houses in high-risk areas. As climate change makes flooding worse, using public money to underwrite waterfront mansions has become increasingly hard to defend.

In 2019, FEMA said it would instead price flood insurance based on the particular risks facing each individual property, a change the agency called “Risk Rating 2.0.” After a delay by the Trump administration, the new system takes effect next month for people purchasing flood insurance. For existing customers, rates will rise starting next April.

The change has won applause from a grab bag of advocacy groups, including climate resilience experts, environmentalists, the insurance industry and the budget watchdog group Taxpayers for Common Sense.

“With a rapidly escalating threat of natural disasters, Risk Rating 2.0 is a much needed and timely change,” said Laura Lightbody, director of the flood-prepared communities project at the Pew Charitable Trusts, which has pushed governments to better respond to climate threats. The fact that some policy holders would face higher costs, she said, was “a reflection of our new, wet reality.”

Staggering costs

But the financial consequences of that new reality will be staggering for some communities.

The flood program insures 3.4 million single-family homes around the country. For 2.4 million of those homes, rates will go up by no more than $120 in the first year, according to data released by FEMA — similar to the typical annual increases under the current system. An additional 627,000 homes will see their costs fall.

But 331,000 single-family homes around the country will face a significant rise in costs. More than 230,000 households will see increases of $120 to $240 in the first year; an additional 74,000 households will see costs go up between $240 and $360. For about 25,000 single-family homes, costs will jump between $360 and $1,200.

Almost half of those 25,000 households are in Florida, many of them along the string of high-risk barrier islands that run from St. Petersburg south to Fort Myers.

In the tiny hamlet of Anna Maria, on the tip of an island at the mouth of Tampa Bay, one ZIP code leads the country in the number of single-family homes facing an increase of more than $1,200. Other nearby towns, including Siesta Key and Boca Grande, face similar jumps.

A house under construction in South Gulf Cove, Fla., a town ninety minutes south of Tampa on Gasparilla Sound.Credit…Eve Edelheit for The New York Times
Marti Beller Lazear is buying a house on Treasure Island, Fla., a slender strip of land off the coast of St. Petersburg. “You can pay down your house,” she said. “You can’t pay away the flood insurance.” Credit…Eve Edelheit for The New York Times

And those increases are just in the first year.

Because federal law prohibits FEMA from raising any household’s flood insurance rates by more than 18 percent a year, it will take years before current homeowners are charged their full rates under the new system. About half of policyholders won’t see the full increase in their rates for at least five years; some may not see it for nearly 20 years.

FEMA declined to make public the full amount of the rate increases that homeowners will pay over time. But insurance brokers are able to see those costs for individual homes, and they are far greater than the initial increases discussed by FEMA.

Mr. Holehouse, who in addition to selling insurance is also a flood insurance advocate for St. Petersburg, said it was misleading for FEMA to disclose the price changes for only the first year of the new rate schedule.

“I want to talk about five to 10 years from now, because most people take a 30-year mortgage,” Mr. Holehouse said.

One of his clients is Marti Beller Lazear, who is in the midst of buying a house on Treasure Island, a slender strip of land off the coast of St. Petersburg. The annual cost of flood insurance for that home will eventually jump from $3,903 to $10,655 under the new rates.

That realization changes her calculation about whether it makes sense to retire in her new house, Ms. Lazear said. Even if she pays off her mortgage, she’ll always face a high annual cost in the form of insurance.

“You can pay down your house,” Ms. Lazear said. “You can’t pay away the flood insurance.”

Pay more, or move out

Just south of Treasure Island is the small town of St. Pete Beach. Melinda Pletcher is a town commissioner. She worries that as insurance costs go up, two things will happen: The value of those homes will fall, even as people who can’t afford rising insurance costs will be forced to move.

“The people who are building or buying the houses that have $1 million in value, they don’t care,” said Ms. Pletcher, whose own rates are going up from about $500 a year to almost $4,500. “People that have been living here for 40 years, they end up not being able to afford to stay.”

Melinda Pletcher, a commissioner of St. Pete Beach, Fla. “People that have been living here for 40 years — they end up not being able to afford to stay,” she said.Credit…Eve Edelheit for The New York Times
A lot for sale in South Gulf Cove. FEMA has said that the area around St. Petersburg is unusual, and that most people around the country whose rates are going up will see far smaller changes. Credit…Eve Edelheit for The New York Times

Ms. Zales, the Tampa resident whose rates are set to eventually exceed $7,000, said she’s lucky that she can afford to pay that much. For new buyers, that kind of increase will push mortgage lenders to reconsider how much money borrowers can afford to repay each month, Ms. Zales said. Prospective home buyers in the future “may not qualify for as high a loan,” she said.

People with a federally backed mortgage are legally required to carry flood insurance. Those who have paid off their mortgage, or didn’t need one in the first place, face a difference dilemma under the new system: Whether to pay the new, higher rates or risk living without coverage and then have no assistance to repair or rebuild if a flood hits.

Gloria Dumas-Ropp built a house seven years ago in a neighborhood called South Gulf Cove, about 90 minutes south of Tampa on Gasparilla Sound. She said she pays $1,120 a year now; that rate will eventually rise to about $6,000, according to data provided by Mr. Holehouse.

If that happens, Ms. Dumas-Ropp, who doesn’t have a mortgage, said she and her husband may eventually decide to drop coverage. She said it’s wrong for FEMA to raise costs for people who bought homes near the coast expecting their insurance to remain affordable.

“I don’t know why they would do that to people who worked so hard to be here,” said Ms. Dumas-Ropp, a retiree who was a vice president at Honeywell.

‘Tell People the Truth’

The rate increases around Tampa Bay are unusual, according to FEMA. The agency stressed that most people around the country whose rates are going up will see far smaller changes, and many others will see a decrease — the first time in the history of the program.

As for those who may be forced from their homes by rising rates, the agency noted that it has urged long urged Congress to offer financial help to lower-income residents — a more targeted type of assistance than simply subsidizing policies for most homeowners regardless of income.

“For the first time, our policyholder premiums will be based on their individual risk,” said David Maurstad, who runs the flood insurance program at FEMA. “We pledge to continue to evaluate and make adjustments where and when it’s warranted.”

A canal in Siesta Key, Fla.Credit…Eve Edelheit for The New York Times
A sign welcomed visitors to Treasure Island at dawn.Credit…Eve Edelheit for The New York Times

Lawmakers have responded to the change with alarm. Last week, 38 members of Congress signed a letter urging House Speaker Nancy Pelosi to block the change.

“We are concerned about the burden of potential double-digit rate hikes on our constituents by FEMA’s untested pricing methodology,” the letter read, calling that burden “too much for them to bear.”

Unlike most climate policy debates, which in recent years typically break along partisan lines, views on flood insurance are less a matter of political ideology than of geography.

All but three of the members who signed the House letter represent coastal states, including five Republican lawmakers from Louisiana and all ten Democratic House members from New Jersey. The letter was signed by 19 Democrats, including some, such as Grace Meng and Ritchie Torres of New York, who in other contexts have stressed the need to address the effects of climate change.

Neither Ms. Meng nor Mr. Torres responded to requests for comment.

Charlie Crist, the former Republican governor of Florida who now represents St. Petersburg as a Democrat in the House of Representatives, also signed last week’s letter. He rejected FEMA’s argument that higher insurance costs would serve to alert people to the risks they face.

“That’s one of the most inhumane, callous statements they could possibly make,” Mr. Crist said. “We’re going to punish you so you know what’s going on? That’s gross. That’s cruel and unusual punishment.”

In the past, insurance policy has been vulnerable to political pressure. In 2012, Congress rolled back some of the subsidies in the flood insurance program, only to reverse course two years later after voters objected to higher costs.

But the growing threat of climate change may make that kind of intervention less successful, said Roy Wright, who ran the flood insurance program until 2018 and now runs the Insurance Institute for Business & Home Safety.

“We cannot hide the truth of this increasing risk,” Mr. Wright said. “We shouldn’t hide it. Tell people the truth.”

Credit…Eve Edelheit for The New York Times
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