A significant spike in flood insurance rates could be coming to homeowners and businesses on the North Shore.
The rate hikes, slated to take effect Tuesday, are due to the National Flood Insurance Reform Act passed by Congress last year. There are nationwide concerns the changes will make homes unaffordable and send property values plunging in flood hazard areas.
While the reform was passed a year ago, real estate associations and Massachusetts lawmakers are calling for a delay in the implementation so some of the issues can be ironed out.
The reform is designed to make the National Flood Insurance Program “more financially stable and ensure that flood insurance rates more accurately reflect the real risk of flooding,” according to the Federal Emergency Management Agency. The program will phase out some artificially low rates and discounts, which have historically been subsidized by the government.
This is a problem for older homes that were grandfathered in before the program started in 1968 and have been receiving government subsidies, said Amy Wallick, a Realtor for J Barrett & Co. and president of the North Shore Association of Realtors.
“A lot of these older homes that are currently in flood zones have been generally protected from true market pricing for the National Flood Insurance Program,” she said. “Our concern as Realtors is how this is going to affect the affordability and saleability of homes in these flood zones.”
Residents and businesses that already own property in flood zones will see incremental increases of 25 percent per year until their premiums reach a full-risk rate. If a property is sold, the new owner will be responsible for the full rate. Subsidies will no longer be offered for newly purchased properties, lapsed properties or new policies covering properties for the first time, according to FEMA.
Wallick is already experiencing the impact of the changes on a home listed near the ocean in Salem. The current owners pay $2,500 for flood insurance, but the potential buyers got a quote of $10,000 from an insurance agency.
“Going from $200 a month to $1,000 for flood insurance will seriously impact the affordability,” she said.
It is unknown how many people would be affected by the changes in Essex County. FEMA did not return phone calls and emails seeking statistics for the county.
The Massachusetts Association of Realtors says the changes could have a negative impact on the recovery of the real estate market.
FEMA says the phase-out of subsidies will affect fewer than 20 percent of flood policyholders nationwide. Tuesday’s roll out only includes non-primary residences, businesses and properties that have experienced severe, repeated losses. The rate will increase for primary residences when their community’s flood maps are updated.
As part of the reform, FEMA has released preliminary Flood Insurance Rate Maps, which could also impact insurance rates.
To address some concerns, FEMA will host a community meeting on its preliminary maps at the Lynn City Hall Auditorium, 3 City Hall Square, Monday at 6 p.m. FEMA staff will be on hand from 3 to 8 p.m. to talk one-on-one with residents, locate properties on the maps and discuss flood insurance implications.
Congressman John Tierney joined the Massachusetts delegation on Thursday in signing a letter to House and Senate leaders pushing to delay the start date of the reform.
“While we support the overall goals of this legislation, we are concerned that if it is fully implemented absent additional measures, some residents and small businesses located in Massachusetts may be faced with economically devastating impacts,” the group wrote. The letter calls for adequate funding for the National Academy of Sciences to complete an affordability study as mandated by the law. The letter also asks for FEMA to improve its outreach in informing homeowners and businesses about the changes.
“Local residents are confused and concerned as they learn of their placement on flood maps and as their flood insurance premiums and rates suddenly increase,” Tierney wrote in a statement. “Many of them had little to no warning that this would happen. FEMA has a responsibility to meet with and assist those affected by the changes in flood maps, and I have been pressing the agency to do a better job on that front.”
Material from the Associated Press was used in this report.
Staff writer Jonathan Phelps can be reached at 978-338-2527 or by email at email@example.com. Follow him on Twitter at JPhelps_SN.