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Ocean City

Rising tide of federal flood insurance premiums threaten resort

(Aug. 2, 2013) With new rate increases set to kick in for October, the resort’s condo market may be getting washed out by flood insurance, unless some local businessmen succeed in lobbying the federal government to modify the zoning system for the National Flood Insurance Program.

“If we don’t get this flood zone change, it’s going to be very expensive for condominiums in particular,” said Reese Cropper of Insurance Management Group, one of the resort area’s largest providers. “What I’ve told the various leaders and congressmen that I’ve solicited is that if the premiums continue to increase, we’re going to have a problem with the real estate market.”

The NFIP was reauthorized by the federal legislature last year for a period of five years, despite the program’s increasing financial vulnerability. But in order to get the system back on sound footing, the reauthorization mandated rate increases that will, in theory, help to make the program more self-sustaining.

“The program as a whole has not been able to carry itself based on the premiums paid in versus the payments given out, basically since Hurricane Katrina,” Cropper said. “What the federal government said was that, if they’re going to be in the insurance business, they’ll have to take those areas that have higher risk and charge them a different rate than those areas that have lower risk.”

“That’s the way all insurance works, and it’s a fair way of trying to change the program to get it back on its feet,” Cropper added. “It really should’ve been done that way from the beginning…but at this point, I think the way they’re hitting the ocean areas is too hard, too fast.”

Since the inception of the NFIP in 1968, the Federal Emergency Management Agency has been authorized to provide flood insurance to those communities that commit to studying and mitigating their flood risk. This is done through the creation of Flood Insurance Rate Maps (FIRMs), which indicate what areas have greater danger of high water and should thus pay larger premiums for their insurance.

The FIRMs also allow FEMA to designate Special Flood Hazard Areas (SFHAs), in which flood insurance purchase is mandatory, and where a Community Rating System (CRS) is used to determine how well a community has undertaken measures to reduce flood damage.

Ocean City adopted the program and FEMA’s guidelines relatively early. The town was first flood mapped on June 6, 1971, and on July 2, 1973, the town adopted its Flood Plain Ordinance to conform to FEMA’s mitigation standards for the SFHA that encompasses most of the island.

Activities include elevating homes and exposed utilities, as well as the extensive beach replenishment efforts, in which the city shares the cost of sand dune replacement with the county and state. This has allowed Ocean City to receive the highest CRS rating, and a subsequent 15 percent discount on all flood insurance in the resort.

Despite these efforts, however, the resort’s oceanfront properties will still bear the brunt of the coming rate hikes. The steepest premium increases are set for ‘V7’ FIRM zones, defined as coastal areas with risk of high-velocity impact damage from wind and water.

Amongst Cropper’s clients, residential properties in these areas are averaging a 12 to 15 percent rate hike, he estimated, versus an 8 to 12 percent hike for ‘A’ FIRM zones elsewhere in the resort, which are considered to have less impact damage risk.

Further, the rate of increase rises with property value. The NFIP re-authorization also mandates a phase-out of properties with grandfathered rates, built before the introduction of the FIRM system.

“The bigger buildings are going to be hit worse,” Cropper said. “But when I look at the flood zones, the ‘V7’ areas are carrying a much bigger burden all around.”

The V7 area in Ocean City encompasses property east of what was considered, at the time of mapping, to be the natural dune line, which was vulnerable to tidal flooding. Since that mapping, however, the city’s massive artificial dune project has been completed and has successful buffered oceanfront properties in multiple storms since, including Sandy this past year.

“There was a natural dune line here in Ocean City, and in the building boom of the 1970s, a lot of the buildings were built on top of or in front of that line,” Cropper said. “We’ve now gone and built a man-made dune, but it’s my understanding that the government will not accept that as being a ‘formidable mitigation’ that would allow the flood zone to be changed.”

“What we want to see happen is to have the V7 zone pushed out toward the beach, and have the dunes accepted as protection,” said Igor Conev of Mann Properties, who manages condo buildings up and down the city’s coastline.

Ocean City is due to be remapped this year under the NFIP reauthorization.

“Before those maps are addressed, we want to make sure our dunes are taken into account,” Conev said. Some condo units are paying over $2,400 annually for coverage.

“When buyers do their math on what these units are going to cost them…it’s a huge decision-making difference,” he said.

“We are trying to lobby our congressmen and say, ‘We need your help. The dune system has proved itself many times before here, and we want you to accept that and move that zone back out to the beach,’” Cropper said.


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