Chamber Forum Focuses on Flood Insurance, Premiums

BURLEIGH – Second District U.S. Rep. Frank LoBiondo was “very optimistic for positive movement” of a House bill that would provide flood insurance premium relief, but did not want to “raise the level of expectation” of quick passage. He expressed his concern Feb. 7 to about 180 gathered at Wildwood Golf and Country Club for a Cape May County Chamber of Commerce-sponsored flood insurance forum.
The congressman believes some news may be released the week of Feb. 10-14 that could ease fears of property owners.
LoBiondo lauded Sen. Robert Menendez for co-sponsoring a bill that passed the upper chamber with bipartisan support. “The Senate bill was not a repeal of the Biggert-Waters Act, therein is a real catch,” said LoBiondo. He cautioned such a repeal could “kill the whole thing” leaving the federal flood insurance program inoperable.
Actions that have taken place recently in the Senate and House were termed, “a good step forward that would provide relief.” The House bill would “not be identical to the Senate bill,” he said.
Second home owners, whose properties are in flood zones, are facing premiums that, in some instances, were raised so high; those owners lack the resources to pay them.
Because the National Flood Insurance Program is between $25 billion and $30 billion “in the red,” LoBiondo said it would be impossible to bring a bill to the House floor that would “increase the debt.”
He also noted that the head of FEMA had agreed to work with communities on flood maps. Many of those preliminary maps were flawed since they listed locations as “velocity zones” where such was not the case.
He lauded Freeholder Director Gerald Thornton for “not grabbing my ear, he just about yanked it off” saying the county needed relief from the Biggert-Waters Act so it would not impact the economy.
Commissioner Ken Kobylowski, N.J. Department of Banking and Finance, related what Superstorm Sandy looked like “from an insurance point of view.”
After Sandy 465,000 insurance claims were filed. “I am happy to report 456,000 are already closed, a 98 percent closure rate. The insurance industry did extremely well for policy holders,” Kobylowski said.
“When you have a claims event, not every company is going to be perfect,” he continued. “We took in more than 2,000 complaints in the state.” That did not mean the companies were at fault, it was just that policy holders were “unhappy with their insurance company or the way the companies were behaving,” he said.
The commissioner said an additional $6 million was recovered for policy holders who filed complaints.
In total there was $4 billion in claims, Kobylowski said.
“What we are seeing in New Jersey is the insurance market is strong,” he said. Of 2.5 million policy holders, 490,000 are in coastal communities while 79,000 are on barrier islands. Eight of 10 of the largest insurance companies do business in New Jersey, he said.
Three new companies were admitted to the state since Sandy, and since 2008, there were 15 new insurance providers in the Garden State.
Kobylowski credited Gov. Chris Christie’s action of not allowing insurance companies, after Sandy, to impose a hurricane deductible higher than the standard $500 or $1,500, if losses are caused by a hurricane event.
In order to qualify for such status, he said, a weather event must have been a named hurricane with winds 75 mph or greater.
“The day after the hurricane passed companies could not impose the deductible because Sandy was no longer a hurricane. The insurance companies were not happy with me,” said Kobylowski. As a result of that stance, “Estimates are they (insurance companies) had to pay out $700 to $800 million more than if they would have had the hurricane declaration,” he said.
“Be that as it may, companies understood we made the right call,” he continued. “We viewed the insurance policy as a contract. In exchange for premiums there is certain coverage,” he said.
Insurance companies are “Taking heart by how we reacted and approached it,” Kobylowski said.
The commissioner said new “surplus line” companies are doing business in the state as of December 2013. They included some foreign firms, such as Lloyds of London. At the start of 2013 there were 151 such firms in the state. By Dec. 31 there were 189 surplus line firms in New Jersey.
Such a proliferation of firms willing to write policies benefits consumers, “If you believe the National Flood Insurance Program is not where you want to be,” said Kobylowski.
Freeholder Director Gerald Thornton, a member of a presidential task force to deal with Sandy’s impact, restated “shock in late November and December (2012) when we found out about the Biggert –Waters Act signed by the president in July.” He cited “hundreds of thousands of homeowners impacted, not only in New Jersey but across the nation.” They are or would be affected by rising flood insurance premiums to make the NFIP program viable and take it out of debt.
He cited a news story from West Virginia in which a young family living in a flood zone near a river feared they could not keep their home because flood insurance premiums rose 3,000 percent over what they anticipated.
Thornton stated nearly 30 percent of Ocean City residents are aged 65 or older, while in West Wildwood 27.7 percent are in the same age category. Due to increasing flood insurance premiums, “The value of home will drop when flood insurance rates are factored in,” he said. Thus a home could lose equity, he said.
While grant funding is available to raise older homes above flood levels, Thornton cited municipalities like Wildwood, where lots are 30 or 40 feet wide, making such elevation is impossible, and potentially making a home inaccessible to an elderly or handicapped owner.
Secondary impact on communities could be decline of ratable base, said Thornton. He noted 47 percent of dwellings in Cape May County are vacation homes, and thus subject to the higher premiums for flood insurance.
The county has already sustained an $8 billion loss in ratables, Thornton said. “It will destroy the ratable base in the county and in every municipality.”
Further, he noted there could be an impact on the real estate industry when “homeowners are snagged in a Catch 22. They won’t be able to afford them, and also have to sell properties at distressed prices. Home values are going to drop,” he warned.
“I urge the Congress to address this issue,” said Thornton. He urged that deductibles be raised as a possible way to trim soaring premium costs. Since FEMA claims its average claim was $39,000 nationally, Thornton said raising the deductible to perhaps $25,000 could remedy the premium problem.
Others who addressed the forum were:
Technical Applications Panel: Tom Thornton, Hatch Mott MacDonald, Sal Perillo, Nehmad Perillo and Davis, Steve Ardito, FEMA mitigation expert.
Practical Applications Panel: Dr. Richard Perniciaro, Atlantic Cape Community College, Bill McMahon, McMahon Insurance Agency, Tom Heist, Thomas H. Heist Insurance Agency, Tom Byrne, J. Byrne Agency.