AUDIE CORNISH, HOST:
Some homeowners in Louisiana and other coastal communities are now seeing their premiums for federal flood insurance skyrocket. For some residents, that means paying annual premiums more than 10 times their current rate. The cause? In part, a new law passed by Congress last year requiring the National Flood Insurance Program to raise premiums for some homeowners in high risk areas. The program has been struggling financially in recent years in the aftermath of major storms, like Hurricane Sandy.
For more, we turn to reporter Siobhan Hughes. She's written about this for The Wall Street Journal. Siobhan, welcome.
SIOBHAN HUGHES: Thank you.
CORNISH: So last year, Congress passed this law that essentially required homeowners in flood prone regions to retrofit their homes or businesses to better survive floods or they would face higher premiums. And why, I mean, how did lawmakers think this would actually help the National Flood Insurance program?
HUGHES: Well, the issue is that a good number of people had subsidized rates, either because their homes had been built before flood maps were in place or because they built their homes to code initially. And Congress thought that requiring these people to pay market rates, they would help lower some of the deficits that had racked up in the funds, starting with Katrina.
CORNISH: So you report that some of those new insurance rates are kicking in. How high and who's most affected?
HUGHES: We're not going to know who is most affected for some time because that will phase in over while. But Louisiana has been hit particularly hard.
CORNISH: And give us some examples. You talk to some residents who were able to tell you what they thought their bill was going to be.
HUGHES: One man in particular, who is an insurance agent down there, and what he found was his rate has been $633 a year. And instead, it was going to go up to $28,000 a year, which was just unaffordable for him. And part of what happened to him is he'd built his home 15 years ago, and the federal government told him how high to build it. And he said, well, OK, to be safe, I'll build it two feet higher than that.
And then new maps are coming out. They're not final yet but the new maps now tell him that 15 years ago he was wrong and he should have built six feet higher than what he actually built. And so, he has to either elevate his home by six feet, which would be unaffordable, or else pay the $28,000 a year.
CORNISH: Homeowners can avoid these premium hikes if they undertake renovations, right, to better protect their homes from flooding? But what's happening for folks there? What's the problem?
HUGHES: Well, there are some retrofits you can make. So, for example, I talked to a lot of people in Red Hook in Brooklyn, New York. And that's another area that's getting hit. And people are doing things like taking their hot water heaters, their boilers, electrical equipment and moving it up to higher floors because that way, if another flood did come, very expensive equipment would not be damaged and there wouldn't be cause for the flood insurance program.
FEMA will give credit for that but the problem is it's not as much credit as what homeowners are hoping for. And FEMA's position is we appreciate you're trying to lower costs but we have to worry about the foundation of the home and you haven't taken care of that.
CORNISH: There's also this other element of the government redrawing the flood maps, which has classified more properties at risk for flood. What kind of effect is this having?
HUGHES: That's a huge issue. And as flood maps get redrawn, homeowners in flood zones will find out whether or not their homes are built at the proper elevation or whether or not they're now in riskier areas than they thought they were and whether their homes will have to rise. And what happens is if you find out that under a new map your home has to be elevated, your rates - starting in October 2014 - will begin to rise.
So for someone like the guy in Louisiana, the first year he'd pay just under $6,000 and then the next year $12,000. And so, it's like a noose slowly tightening around your neck.
CORNISH: Now, it's been implied that these rate hikes are an intended consequence of the new law. But is it? I mean, isn't this just insurers essentially saying this is what it costs to insure a home or business in a flood prone area?
HUGHES: Insurers are saying this is what it costs. Looking back through some of the legislative history of this, I looked at an old Congressional Budget Office report which projected that premiums would double. Now, doubling is a big increase. But that's a lot different from an increase of, you know, 10 times or 20 times what you'd previously been paying. And part of the problem, it seems, is that no one could have known what new flood maps would show.
No one still can know whether or not communities that think they've properly elevated their buildings are now at more risk than they had thought.
CORNISH: Siobhan Hughes is a reporter with the Wall Street Journal. Thank you so much for talking with us.
HUGHES: Thank you.
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