BY TODD SPANGLER, PEGGY WALSH-SARNECKI AND KATHLEEN GRAY
DETROIT FREE PRESS
Andrew Teasel started on flood insurance.
"I hate it more than anything on the face of the Earth," said Teasel of Fair Haven.
He pays more than $1,000 a year for coverage he insists he doesn't need for two homes on canals of Lake St. Clair.
Lake levels are down all over the Great Lakes region and premiums are up for the mandatory insurance for holders of federally backed mortgages in designated flood zones.
Related
• Database: FEMA flood loss insurance claims and payouts for U.S. communities
• Flood insurance policies, losses and payouts: A state-by-state comparison
• Flood insurance premiums collected vs. claims paid: A state-by-state comparison
• Lake St. Clair water levels: 1910-2010
But to many, flooding in southeastern Michigan is a distant memory, even as they watched fresh scenes last week of catastrophic flooding in Arkansas and Missouri.
With the Great Lakes at low levels, many Michiganders -- including U.S. Rep. Candice Miller -- are up in arms, saying they believe they're paying for billions of losses on the gulf coast and demanding an end to the National Flood Insurance Program.
Don't count on it: The insurance industry won't take on the risks, and without the protection, many waterfront properties would be unmarketable.
And just because a flood hasn't happened in decades doesn't mean there is no risk. Chances of Great Lakes flooding may be slim in 2011, but that could change with a few years of heavy snow and rain in the lakes' vast drainage basin.
"This is cyclical. It will change," said Larry Larson, executive director of the Association of State Floodplain Managers. "Therein is the problem: People think 15 years is a long time."
Low lake levels and higher premiums have many Michiganders steamed about flood insurance
It seemed like just about everyone who came to Mac and Ray's Banquet Center in Harrison Township on a recent Monday was angry about flood insurance.
The banks that held their mortgages were making them pay for more coverage, driving up premiums. The Federal Emergency Management Agency -- FEMA, which runs the National Flood Insurance Program -- continued to require insurance in areas that, with average lake levels down on Lake St. Clair, seemed to residents unlikely to ever be inundated.
"I would prefer that when my policy is due," said Harrison Township resident Jack Swiatkowski, "someone would just come to my house with a gun and a mask."
Insurance is never an easy topic. In Detroit, residents feel gouged for auto coverage. The health care reform debate in Washington focused less on the cost of health care and more on the price of insurance.
It is no different for flood insurance, with many people -- particularly in southeastern Michigan -- feeling like they pay too much for coverage that they won't use. Many say they believe they are pawns in a government scheme to cover multibillion-dollar losses to the program in New Orleans and the gulf coast.
U.S. Rep. Candice Miller, a Harrison Township Republican, has called for the program to be phased out and state insurance pools to be created to cover risks. She has compared Michigan to an ATM, being "forced to pay for the flood risks that our state does not actually face."
Miller's proposal has slim prospects of passage. The House Financial Services subcommittee with responsibility for the NFIP recently worked out a reauthorization that would keep it going for years, though it presumably would make it more actuarially sound -- meaning more property owners would see premiums reflecting their actual risks.
And although angry Michiganders may be misguided on some points, such as believing their premiums are paying for coastal flooding from hurricanes, including Katrina and the rest from the destructive 2005 season, they have legitimate gripes. One fair allegation is that some homes with less risk are lumped with those that have more.
History of flood insurance
The national flood insurance program dates to the late 1960s and was created to reduce disaster costs to government by getting communities to write more specific plans for floodplains and have property owners pay for coverage.
For a homeowner, the rule is simple: If you are in what's called a 100-year floodplain -- meaning you have a 1% chance of flooding in a given year or a 26% chance of at least one flood over the life of a 30-year mortgage -- and you have a federally backed loan, say, from Fannie Mae or Freddie Mac (which back about half of the nation's mortgages), you must have flood insurance.
From almost the start, there have been complaints.
The program allowed for even more development in waterfront areas, as long as it met guidelines. Structures built before 1974 were subsidized, their rates often not increasing, no matter the risk.
The program was never designed to pay for itself, although, until 2005, it did a reasonably good job of it. That year, losses along the gulf coast forced the program to take on a $21-billion debt to the U.S. Treasury.
That has been whittled down by a few billion, but it may never be paid back in full.
"The general consensus is that FEMA took a bath in New Orleans, and they're making up for it in Michigan," said Bob Wall of Algonac, who spent six months fighting with the agency and his bank to avoid paying for more flood insurance.
It's untrue, says FEMA. Rates are set for each of the various flood zones accounting for risk factors and presumed losses in each zone, not across, say, coastal and river zones or to make up for past losses.
But there are other parts of the program that homeowners fairly criticize.
Disputes over rates
Take the case of a property owner in FEMA's A zone -- meaning, they are in the 100-year floodplain. She lives near, but not on, the water. There is someone closer to the river or lake -- whatever it is -- and that person's property is at a lower elevation with more risk.
They may pay the same rate.
It happens all over: The 100-year floodplain in St. Clair Shores differs from the one in New Orleans.
There also is a question of how much damage a given home or property might suffer in a 100-year storm. To set zones, FEMA experts annually sort out which communities may need revising. Hydrology studies, past damages, engineering analyses and data from the Army Corps of Engineers are plugged in to determine how high the water may get in a given scenario in a given area.
A flood in one place might mean inches of water in a basement; in another, a deluge.But the rate can be the same.
Rob Paris has lived in his canal-front home in Harrison Township for nearly two decades. He's outside the flood zone, but in 1986, when water levels reached records, he lived inside the zone. His home never flooded, though, in part thanks to the berm built to protect it.
"If you prepare for it, it's not that bad," he said.
That's not always true, even in Michigan. Take the 2 to 6 inches of rain that fell across metro Detroit over 36 hours in 2004: Some backyards were submerged under several feet of water; 100 Macomb County homes had damage of upwards of $100,000 each.
Those homes were on river floodplains, which can be inundated from a heavy, sustained single storm, unlike the Great Lakes shoreline, where flooding usually occurs when two things -- high water levels and sustained high onshore winds -- happen at the same time.
How much is needed?
Over the life of the flood insurance program, payments on losses in Grand Rapids have totaled $1.9 million; in Midland, $1.8 million; in Farmington Hills, $1.7 million.
In the 100-year floodplain, a homeowner's chances of flooding are higher than the risk from fire (26% to 9% over the life of a loan).
"Flooding is the most common and costly natural disaster in our country, and homeowners insurance typically does not cover damage or losses," said FEMA spokesman Brad Carroll. "Flood insurance can be so crucial."
And floods are unpredictable and don't hit the same areas equally, if at all. Payments on losses in Grand Rapids, for instance, have been $1.9 million, equal to about 6.6% of the total current coverage of $28.2 million; in Harrison Township, by comparison, payments of about $500,000 worth of damage account for less than 0.25% of the $243 million of coverage.
Not all of that is mandated coverage: Some people buy flood insurance from FEMA even if they are outside the mandatory zone. In other cases, lenders insist on additional coverage -- to pay for up to 80% of the presumed cost of rebuilding a structure -- above FEMA rules, which allow for coverage to be limited to the outstanding loan principal.
"It's improper," said Wall, who fought back when his lender told him he needed a policy worth five times what he owed on his house.
Change in flood data
In the mid-1980s, flooding around Lake St. Clair and on the St. Clair River was widespread. Families were forced to flee homes, downpours flooded basements, ice dams forced water levels to dangerous heights.
But that was a quarter-century ago, before worries of climate change and global warming became widely held. Now, if anything, the concern is over dropping lake levels.
A few years ago, the Army Corps of Engineers released new studies on Lake St. Clair, reflecting data on dropping water levels and a belief that, overall, those levels will keep falling. But although that data has been worked into new flood maps for areas in Wayne and St. Clair counties, it has not yet been figured into Macomb's maps -- though it soon will be.
FEMA and the state, which work together to develop maps, don't have the resources to quickly rework every flood map for every community that is part of the NFIP. With planning, review, investigations, public notice, hearings, etc., the process can take years.
That process adds some properties to the floodplain. Others -- and FEMA records show examples -- are removed.
Meanwhile, though the long-term trend for lake levels is down, there are no guarantees.
Lake levels on Lake St. Clair have been recorded since 1910. Of the five highest years in that time, two were in the 1970s, two in the '80s and one, the fifth highest, in 1997. Of the five lowest levels, the most recent was in 1964. And although there have been years in which levels have fallen precipitously -- nearly 17 inches in 1999 -- there also have been years when it has risen more than a foot.
Craig Stow, a researcher for the National Ocean and Atmospheric Administration in Ann Arbor, added that it's not a certainty that lake levels will keep dropping if the climate warms. One school of thought has it that such a change could affect plant life, reducing ground cover and increasing runoff.
"Great Lake water levels fluctuate over a long period of time," said Les Thomas, state coordinator of the flood insurance program for the Department of Environmental Quality. "It may get up to that high of an elevation again."
Legislative remedies
The reauthorization bill being considered in the U.S. House would remake the flood insurance program in many ways. It would require premiums paid for newly bought homes, second homes, commercial properties and homes that have been substantially damaged or improved to reflect actual flood risk, just as if they had been built after 1974.
It would increase deductibles for properties that get a subsidized premium, too.
But that's a far cry from Miller's bill, which would have ended the program and let states set up risk pools.
Part of the reason the program remains on solid footing is because, in large part, the insurance industry doesn't want to take on covering flood damage. The costs of duplicating the federal effort in studies and maps would be enormous.
Part of the reason the U.S. government got into the business was the high cost of private flood policies. Insurance companies would likely only be able to take it on now by keeping enormous assets on hand to cover their exposure.
That would lead to high premiums on one end and, on the other, adverse selection -- companies agreeing to insure some, refusing others with higher risks.
"I don't think you're going to see communities with lower rates anywhere," said Don Griffin, a vice president with the Property Casualty Insurers Association of America.
For instance, he said, take that $18 billion the NFIP owes the Treasury. In recent years, the program had been paying about $900 million in interest a year. Then it had its interest rate renegotiated to a quarter-point -- unbelievably low -- to where it owes about $44 million a year in interest.
"We're not going to get that kind of interest rate," he said.
Griffin's group put out a study last week indicating that NFIP's rates, nationwide, are about half the cost they would be if private insurers covered those same flood risks -- though that includes high-risk and lower-risk properties alike in the same pool.
The program's critics in Michigan and elsewhere will continue to call for change, but as long as people build near the water, flood insurance will remain a divisive issue.
But, make no mistake, said Larry Larson, executive director the Association of State Floodplain Managers, the risk is real, if it's present at this moment or not.
"People say, 'I've lived here 40 years and it's never flooded,' " he said. "People got to understand, 40 years is not a long time."