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Will Flood Insurane Cost More in New Town? There's No Easy Answer

Carmel Pine Cone -- Aug. 28, 2009


OPPONENTS OF the drive to make Carmel Valley a
town claim flood insurance rates will go up if incorporation
succeeds at the ballot box in November. Proponents, meanwhile,
dismiss such claims as political propaganda. So who’s
telling the truth? There’s no easy answer.

In last week’s issue of The Pine Cone, town council candidate
and incorporation opponent Thomas C. White III said
he was worried about the impact incorporation could have on
his residential community’s insurance rating.

“It’s going to cost my community between $71,500 and
$232,000 as a result of increased flood insurance premiums,”
explained White, who lives in Hacienda Carmel. “Our broker
told us our rates will go up 20 to 26 percent for two to
five years.”

Incorporation supporter Glenn Robinson, who’s also
running for town council, took issue with White’s claim.
Robinson accused White of using “fear tactics.”

Here’s a brief overview of how national flood insurance
works: Because standard homeowners insurance policies
don’t cover flooding, Congress created the National
Flood Insurance Program in 1968, which makes government
flood insurance available to homeowners, renters, and business
owners in communities that choose to participate in its
program. A second program, the Community Ratings
System, was later created as a means to offer incentives to
communities to protect themselves against flooding.

Based on its flood control policies, a community receives
a rating based on a scale from 1 to 10, with a class 1 rating
being the highest. Monterey County currently receives a
class 5 rating, which enables residents in its Special Flood
Hazard Area to receive flood insurance discounts of 25 percent.
Residents living outside the high risk area receive discounts
of 10 percent.

“Monterey County has done a good job,” said Gregor
Blackburn, the division chief of the Federal Emergency
Management Agency’s flood management and insurance
branch. “They are safer from flooding than many communities.”
If Carmel Valley’s voters choose to incorporate in
November, the new town will be be audited by the Insurance
Service Organization, a private company that assesses insurance
risks. The town will have until July 2010 to convince the
ISO that its oversight of flood control is at least as diligent as
the Monterey County is in preventing floods.

Of course, it’s very unlikely flood control policies and
practices in Carmel Valley will change much if it becomes a
town. But, according to an analysis of Carmel Valley’s
finances, the risk of losing the class 5 flood-control rating is
very real.

“When a community joins the NFIP,” reads the document,
“it typically enters the program with a low, class 10 rating. As
a result, new and renewed NFIP policies will likely lose the
premium discounts associated with Monterey County’s Class
5 rating. It could take several years for the new town to join
the NFIP ... and implement activities necessary to obtain a
class 5 rating.”

While the fiscal analysis seemingly concedes that flood
insurance rates would go up — at least temporarily —
Blackburn said it’s not a certainty they will. According to
Blackburn, each of the parties involved in the process — the
new town, the county water resources control agency, FEMA
and ISO — are committed to helping the new city succeed
with its flood management policies.

“Everybody has a stake in making this a smooth and
seamless transition,” he said. “We will work as diligently as
we can to assure that.”

Still, Blackburn also made it clear that it’s possible flood
insurance rates — at least temporarily — could go up.

“I can’t say yes and I can’t say no,” he conceded. “We’re
looking at hypothetical situations, and there are too many
variables. It’s a program with lots of moving parts.”

An ISO official declined to comment on the matter and
referred questions regarding flood insurance back to FEMA.

More than 20,000 communities in the U.S. participate in
the NFIP. About 40 percent of those communities receive a
level 5 rating or better. The most recent city in California to
incorporate, Goleta, joined the NFIP but declined to join
FEMA’s rating system. As a result, its residents who live in
high risk flood areas don’t receive the same discounts as their
counterparts in Monterey County.

Because of the complexities of the incorporation process,
the California Association of Local Agency Formation
Commissions published in September 2008 a document,
“Newly Incorporated Communities: Successful Transitioning
to Citihood — A Guide to Surviving the Post-Incorporation
Blues.” But the document doesn’t contain any reference to
flood control or flood insurance.

Last Updated: Sep 07, 09

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