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Monday, April 29, 2013

Pros and Cons of flood insurance

By TIM FAULKNER/ News staff

The state is urging residents, especially those in flood zones, to buy flood insurance. But is flood insurance good for the environment? Will it be so expensive that it forces property owners to forgo coverage? 

In an era of more intense weather, heavy rains and violent storms are causing more flooding and damage to property. Hurricane Sandy, tropical storm Irene and the flood of 2010 are no longer considered anomalies.

“We expect that trend to continue,” said Annemarie Beardsworth, spokeswoman for the Rhode Island Emergency Management Agency (RIEMA), the agency that coordinates the national flood program for the state.

To help manage costs for residents and the government, RIEMA wants more owners and tenants to get protection. According to REIMA, less than 4 percent of the state’s 500,000 homes and business have flood insurance.

The average annual premium is $1,200 for a building in a flood zone and $125 for buildings in low-risk areas. Coastal homes, however, have much higher premiums. Coverage of $250,000 for a building and contents costs $7,137 a year. Flood insurance for renters also is available, for about $125 a year.

The cost, however, is expected to climb. Beginning in 2014, rates will climb 20 percent and increase annually during four subsequent years. The increase, as dictated through the federal Biggert-Waters Flood Insurance Reform Act of 2012, seeks to curtail mounting costs to run the federal program. Due to more intense storms in recent years, premiums have fallen well short of expenses, creating an estimated $30 billion deficit.

Since 1968, the heavily subsidized national flood insurance program only charged about 45 percent of the actual cost to policyholders. The new rates shift most of the cost onto policyholders. In high-risk areas, rates will climb for new homes, homes sold to new owners or if a mortgage is refinanced. Most property owners who receive federal disaster aid will be required to get flood insurance.

Critics say higher flood insurance rates will discourage development in flood zones, a prospect that environmentalists generally favor because it helps protect areas such as environmentally sensitive wetlands. However, higher premiums may also encourage homeowners to go without insurance, which shifts clean-up costs to taxpayers.

Beardsworth said the higher rates aren't intended to promote a retreat from flood zones; it's about cutting costs. "I think every individual situation is different," she said. "We can't tell people what to do. (Home owners) have to run the numbers and make the decision that is best for them."

Hurricane Sandy and subsequent storms have likely changed the shape and breadth of high-risk areas. Updated flood maps showing the new flood zones are expected this summer. The current and eventual new zones are online at

Targeted zones seeking to clear development from large areas hasn’t taken hold in Rhode Island. Gov. Lincoln Chafee said it would be a legal mess for the state to buy threatened waterfront structures as New York has proposed.

Flood insurance for property owners and renters is available through local property and casualty insurance agents. Rates are the same regardless of the agent. A standard homeowners policy doesn't include flood insurance.

“The bottom line is we’d love to see everyone have flood insurance,” Beardsworth said.