With Flood Insurance Changes Expected to Hit Louisiana, Calls for Greater Transparency Mount | Lake Charles News

Tommy Phillips was so worried that he went to his insurance agent to get some answers, and they weren’t good.

Phillips, who lives near Boutte in St. Charles Parish, near levees, a canal and a pump station, heard about upcoming changes to the nation’s flood insurance program and wanted to know how much more he’ll have to eventually pay. FEMA has not yet provided that information, so he asked his insurer to quote him a rate as if it were a newly built house.

The price he ended up with was more than $8,100 annually. Phillips currently pays $567, making it an increase of more than 1,300%, to be phased in over several years for a home that has never been flooded. He lives in an area where flood insurance is required.

“It’s ridiculous to think about that,” said the 52-year-old, who moved into his 2,400-square-foot apartment in 2003, when it was new, and raised his two children there. “People can’t afford it. They can’t afford it. So what about their homes? They are going to have to stop paying their mortgages.”

Louisiana homeowners who currently have flood insurance will begin to see the impact of a drastic overhaul of the program next month, but there are concerns that few understand the changes or their implications.

With big raises on the way for many, public officials and residents accuse FEMA of leaving the public in the dark by not sufficiently explaining the new system and the effect it could have on the state’s housing market. FEMA says the changes will make the program fairer and more solvent, but early results have sparked concern and growing calls for more transparency.

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Sweeping changes are coming to the National Flood Insurance Program, which will result in premium increases for many Louisiana policyholders…

Louisiana’s two Republican senators, Bill Cassidy and John Kennedy, announced Monday that they have introduced a bipartisan bill that would require FEMA to provide tools to help policyholders understand what their new rates will be. The bill is co-sponsored by Sen. Kirsten Gillibrand, DN.Y.

Even some in the industry say they haven’t been provided with enough information to fully understand how the new rates will be set under what is known as Risk Rating 2.0. An executive at a company that sells thousands of flood insurance policies says she has not yet been provided details on how base rates are calculated.

The stakes are high for Louisiana, which has the nation’s highest participation rate in the National Flood Insurance Program. Its coastline is largely industrious, home to shrimpers and thugs rather than seaside mansions. Major increases, even in stages, could reshape parts of the housing market and weigh on mortgages.

But so far, FEMA has provided only limited information, as it seeks to reassure concerned policyholders and public officials that the new system will be fair to all. It has only released data on monthly increases and decreases for the first year after the program takes effect, masking the true long-term impact.

Because program rules cap annual increases for existing policyholders at 18%, the initial increases don’t really tell the story.

Using the data provided so far, an analysis of The Times-Picayune | The Advocate shows that about half of the state’s policyholders are expected to see gradual increases totaling more than 129%. About one in 10 could see their premiums increase by more than four times their current amount, while around 20% are expected to see decreases.

‘Kill our community’

At a recent town hall on the issue in Luling, St. Charles Parish President Matthew Jewell said residents were seeing “unreasonable” rate increases that would “kill our community.”

FEMA says it has provided in-depth training to insurers so they can explain the system to customers, noting that policyholders also see increases under the old system, though they average 10% per year.

“We will continue to communicate with the public through these channels to increase understanding of Risk Rating 2.0 as implementation continues,” he said.

The new system marks the program’s biggest change in how policies are priced. It started for new policies in October and goes into effect for existing policyholders starting in April, though not all at once. The approximately 500,000 policyholders in the state, which represents about 10% of the national total, will begin to see the changes with their first renewal after March 31.


Tommy Phillips stands at the back of his property where a drainage channel and levee are visible in Boutte on Friday, March 11, 2022. (Photo by Brett Duke, nola.com | The Times-Picayune | The New Orleans Lawyer)

FEMA says it will take up to five years for half of all policyholders to reach their target rate under the new system, considering the 18% cap on increases. It will take up to a decade for 90% to reach that threshold and the remaining 10% even longer. Policyholders will be informed of their full target rate when they receive their renewal notifications.

Those who receive decreases will see them only in the first year.

The idea behind the new system is to more accurately account for the risk of flooding. FEMA says that under the old system, policies for newer, more expensive homes were essentially subsidized by those for older homes that are less expensive to repair.

Policies for expensive beach houses shouldn’t be artificially low thanks to comparatively higher rates for working-class housing, according to FEMA and a variety of organizations supporting the changes.

Beyond that, the changes aim to bring the NFIP’s role more in line with private sector actuarial standards, which could help address its gargantuan debt, currently around $20.5 billion.

Hurricane Katrina was a major cause of that debt, accounting for more than $16 billion in claims paid by the NFIP. But as many have pointed out, the flooding happened then because the federal government’s levees failed.

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“It was a man-made failure. I think when people are at fault for doing something, they should be held accountable, not us through higher insurance rates,” said U.S. Rep. Garrett Graves, R-Baton Rouge, who attended the Luling town hall, to applause from several dozen people present.

‘Ups and downs in rates’

Since October, new policies are being priced at full rates immediately, and that’s where the first hits are felt.

The price quoted to Phillips was especially high and it is unclear whether his actual policy will be in that range. But it’s also not out of the realm of possibility, considering some of the early returns.

Graves called the new system a “flawed strategy” and urged improved FEMA communications.

“We have only seen sudden increases in rates,” he said. “Fees ranging from $560 a year to $6,000, $7,000 a year or more at St. Charles and Lafourche parishes and in other areas.”

FEMA defends the new system, saying it “demonstrates the real risk current policyholders face so they can be properly informed.”

He has proposed giving aid to those who can’t afford it, but that would require congressional approval. FEMA had not responded to a question about whether such assistance was approved last week as part of a government massive funding bill.


Tommy Phillips walks to the back of his property where a drainage ditch and levee are visible in Boutte on Friday, March 11, 2022. (Photo by Brett Duke, nola.com | The Times-Picayune | The New Orleans Lawyer)

A major point of contention has to do with what owners see as bait and switch. They argue that they bought their homes and planned investments under the old system based on flood maps, which they could understand. A complicated algorithm is now being used to set new rates that may have nothing to do with the old ones.

As an example, a FEMA representative at the Luling meeting was asked about homes that were built to a required height under the previous rules, but could now be penalized because of the changes.

“I wish I had an answer to that question, sir,” said FEMA official Gilbert Giron. “The structures were built compliant. They were based on the data we provided.”

Girón then tried to explain to the skeptical audience why the changes were being made and the flaws in the old system.

“What they didn’t rely on was a risk assessment,” he said. “They were built at the location on a paper map. Now, I’m sure many of you know that the water is not going to stop because there’s a line on a piece of paper that says this is the end of the flood zone.”

‘It just isn’t clear’

Risk Rating 2.0 sets prices based on a complicated set of factors. Unlike the old system and its map-based formula, the new one looks at the characteristics of each individual household.

Those factors include the distance from the water, the quality of the levee, the type of foundation, and the cost of rebuilding. It also seeks to account for more types of flooding. One factor that remains puzzling to many is how the new system will account for elevation.

Sample spreadsheets combine a home’s individual features with a base rate per $1,000 of coverage value to generate a quote. But it is not clear what is included in the base rate.

“They didn’t tell us how they got to those base rates,” said Patricia Latshaw, a senior vice president at Florida-based Wright National Flood Insurance, which says it’s the nation’s largest seller of NFIP policies.

When asked about FEMA’s transparency, he said “there has been some transparency, but what really makes it difficult is that we can’t look inside (the new system) to see how a building is classified.”

The state congressional delegation has sought to delay the implementation of Risk Rating 2.0, in addition to lowering the cap on annual increases, among other changes.

In addition to his new transparency bill, Cassidy highlighted an internal FEMA study that says nearly 20% of policyholders could drop out of the program over a decade. FEMA says the study used “pessimistic assumptions” and expects enrollment to increase.

From what he has seen, Phillips believes the outcome in southern Louisiana will be severe. He worries that the levees near his home are not being accurately accounted for and believes the new fees could have a devastating effect on communities.

He says “the whole thing is unclear as to what’s going on.”

“It’s more about the culture that we have in South Louisiana and how it’s going to be destroyed if it’s not changed,” he said.