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Federal flood insurance rates set to increase

During April 2007 flooding in Lowell, residents move a boat to dry ground across a flooded yard on New York Avenue.

Michele McDonald for The Boston Globe/2007

During April 2007 flooding in Lowell, residents moved a boat to dry ground across a flooded yard on New York Avenue.

Some waterfront homeowners and others who live in flood-prone areas are seeing flood insurance rate increases of 25 percent as a result of legislation passed last year to make the federal program more financially secure.

The rate increases — coupled with changes in the flood zone maps — are causing pain as far inland as Lowell, and in the coastal communities of the North Shore, where some homeowners in high-risk areas pay as much as $4,000 a year.

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Peter A. Rossetti, who owns an insurance agency in Saugus, said some clients who suddenly found themselves in flood zones because of recently redrawn flood zone maps saw their annual premiums skyrocket from $200 to $2,000 or more. He said he has seen a marked increase in claims in communities north of Boston since the severe flooding caused by the Mother’s Day storm of 2006.

“The weather we’ve been having over the past few years is more severe,” Rossetti said. “The number of people who are required by their banks to carry this type of insurance has gone up. . . . It’s not just in Salisbury or Plum Island; it can be in areas that have generally a relatively minor stream flowing through it.”

There are approximately 60,000 flood insurance policies in the state. The average annual premium statewide is $1,160.

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North of Boston, Revere has the most federal flood insurance policies, with 1,893, followed by Salisbury with 1,212 as of February. With both the Merrimack and Concord rivers running through it, landlocked Lowell has the highest number of federal flood insurance policies in Middlesex County at 1,146, according to the Federal Emergency Management Agency.

The rate increases began taking effect for some property owners Jan. 1 as a result of federal legislation passed last year mandating that the National Flood Insurance Program raise its rates to reflect flood risks accurately and to be financially self-sufficient.

The program, created in 1968 and mandatory for homeowners who live in areas prone to flooding at least once every 100 years, is run by FEMA, which is still in debt $17.5 billion for claims relating to Hurricane Katrina in 2005. Insurance payouts for damage caused by Hurricane Sandy last October are estimated to be at least $12 billion, according to a February report by the Congressional Research Service.

The report estimated the program’s debt at more than $20 billion. To address this, Congress approved changes to the program that would phase out subsidies on properties built prior to when a community adopted its first flood insurance map, which in most cases would be between the 1970s and 1980s. The maps, delineated by FEMA, identify flood risk levels in certain areas of a community.

The elimination of subsidized rates began Jan. 1 on vacation, or secondary, homes, and will take effect starting Oct. 1 on businesses; properties that have sustained severe repetitive flood losses; and properties where flood claim payments have been equal to, or in excess of their fair market value. Premiums on these properties will increase by 25 percent annually until they reach the full risk rate of the flood zone they’re in, according to FEMA.

Nationwide, the changes could affect about 20 percent of policyholders, but in Massachusetts, where the housing stock is older, that number will be significantly higher, said Richard Zingarelli, state coordinator for the National Flood Insurance Program.

“I suggest to people to talk to their [insurance] agent in advance [so] that they know in advance what those changes are going to be so they can be prepared for it financially,” he said. “For flood insurance, you pay the entire premium at the time of the renewal of the insurance. That could be very difficult for people to deal with if they haven’t planned for it.”

The rate increases don’t stop with vacation homes or businesses. Most federal flood insurance policy holders can also expect a 5 percent annual increase starting Oct. 1 to be used for a reserve fund created to cover the cost of claims from catastrophic events.

Additionally, everyone can expect a 10 percent increase to the annual federal fee imposed on their policies to cover the insurance program’s operational costs, Zingarelli said.

The cumulative rate increases could be devastating for homeowners, particularly those who had their properties folded into flood zone areas for the first time after the state adopted new maps in 2011, said Adam Baacke, assistant city manager in Lowell.

After the new maps were adopted, Lowell’s Centralville neighborhood and parts of downtown along the canal system were identified as flood risks.

“It has the potential to create an additional cost, especially in the case where many of the [development] projects happening in or around downtown Lowell are already economically very tight, if not requiring some sort of subsidy to work,” Baacke said. “Centralville is a working-class neighborhood of the city and property owners are not happy with the added cost.”

In Newbury, which encompasses parts of storm-battered Plum Island, many residents rushed to purchase flood insurance policies at lower rates prior to the FEMA flood zone map changes, said Joe Story, chairman of Newbury’s Board of Selectmen. The move allowed those residents to lock in, or be “grandfathered” in to the lower premiums before the changes took effect.

“What happens to the people is they’re really getting squeezed now,” Story said. “I was talking a few weeks ago to someone who has a summer cottage down [on Plum Island] and he was saying . . . his flood insurance in the past five years has almost doubled.”

By next year, however, grandfathered rates will be a thing of the past. The new law dictates the program will be phased out over five years starting in 2014, Zingarelli said.

Owners of properties in low-risk flood zones can pay a flood insurance premium of up to $415 a year, while those in high-risk zones can pay at least $4,000 a year, said Vikki Thomas, personal lines manager at Chase and Lunt Insurance in Newburyport.

She expects the flood maps will be revised again given the devastation caused by Hurricane Sandy last year and, given the new federal insurance premium rate increases, she said people should try to lock in lower rates now, before the “grandfathering” program ends.

“More areas are going into the flood zones because of the weather,” Thomas said, adding that it will be too late if people wait until it is time to renew their policies. “Call your agents and make an informed decision. . . . It takes two seconds to run a flood zone determination on their properties.”

Katheleen Conti can be reached at kconti@globe.com. Follow her on Twitter @GlobeKConti.
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