Until a few years ago, Freedom Boat Club founder John Giglio was paying about $3,000 a year for flood insurance on his Venice, Fla., marina, which is on less than an acre of water. Then the Federal Emergency Management Agency updated flood maps to reflect rising waters, as well as flash-flood threats from development.
Giglio’s flood insurance premium shot up to $30,000 a year before leveling off at $20,000 last year. “We own some marinas in addition to the boat club itself, and we have seen an unbelievable spike in insurance rates,” he says.
Like many, Giglio gets his flood coverage through FEMA because there are few insurance companies that offer it to marinas; in his area, there are none. In 2017, FEMA reports it had written 1.73 million flood policies for businesses and home owners in Florida, by far the most of any state. Texas came next with nearly 600,000 policies, and Louisiana was third with about 495,000 policies. All are in hurricane-prone states that have experienced major storm damage in the last three years.
And marina owners can’t go around the system. Giglio, for instance, appealed to the bank to let him set up an escrow account dedicated to flood damage, and said he would offset any additional costs. The bank refused. “It’s pretty crazy what’s going on,” he says. “If you finance the building, the bank requires it. It’s a frustrating component of property ownership.”
Insurance companies are frustrated, too. As it turned out, with Giglio’s 3,500-square-foot building, FEMA was right: It did flood, with rain runoff coming from parking lots and sidewalks after a strong storm. “There’s so much building going on along the west coast of Florida that the water has nowhere to go but down the street, and it flooded out our building,” he says, adding that even the higher-premium plan turned out to be a bargain. “I’m glad I had flood insurance because [the damage] cost about $100,000.”
The Biggert-Waters Act
The federal flood insurance program changed right around the time Hurricane Sandy hit in 2012, but it wasn’t related to that storm’s coastal surge. Rather, the change was the result of legislation enacted after Hurricane Katrina, says Greg Wright, president of John B. Wright Agency, an insurer in New Jersey.
Among other things, the Biggert-Waters Flood Insurance Reform Act of 2012 stated that the FEMA program must collect enough in flood premiums to cover losses. After Hurricane Katrina, there wasn’t enough money to cover losses, so the U.S. Treasury wound up financing the damages, Wright says.
The law also required FEMA to establish an ongoing mapping program to review, update and maintain flood insurance rate maps, including all areas within 100- and 500-year floodplains and residual risk areas. Those maps take into account not only changing floodplains and tides but also development, which increases the risk of runoff flooding during downpours.
“The issue with climate change is that there is additional tidal surge that goes farther into properties that is more forceful,” causing what had historically been 100-year floods to occur as frequently as every decade, says Jamy Madeja, an attorney with Buchanan and Associates who represents the Massachusetts Marine Trades Association. “The amount of water that pours out of the sky at one time is increasing also. The stormwater systems meant to carry water are overflowing and not carrying the water toward locations they were intended to.”
Between that problem and climate change, Wright says, “marinas are getting hit in the head.” Madeja says that in Massachusetts, many insurance companies are getting out of flood coverage altogether. “The ones who are left are well aware of these risks,” she says, “and their pricing has changed.”
A Silver Lining
In a positive change for marina owners, rising federal program premiums are attracting some insurance providers to get back into marina coverage, Wright says. “There is a silver lining to this,” he says. “The free market has decided to enter the flood insurance market throughout the entire world, especially in the U.S. We’re kind of weird. We still allow coastal building and development, whereas Europe doesn’t allow it much. The rates that had to be increased by law are becoming adequate enough where the free market feels it can make a profit by jumping in.”
Companies getting in include Markel Specialty, Chubb Insurance, AIG and Philadelphia Insurance Companies, which is part of Tokio Marine Holdings. The list of private firms includes Lloyds of London syndicates, which is not a traditional insurance agency; rather, it’s an office that allows people with wealth to bet on a risk, Wright says. “Most of them are international, [and] they’re writing insurance policies that don’t exclude flood- or land-based damage,” he says.
While rates are rising, the free market is tempering how quickly they’re going up, Wright says. Private companies also are offering types of coverage that marinas and boatyards haven’t been able to obtain for years, such as broader coverage and replacement costs; compensation if a business loses income because of flood damage; and building ordinances, which means that instead of covering comparable repairs, insurance covers some improvements to prevent future flood damage, he says.
The coverages are also including some of the tools and contents of the buildings, as well as hulls and engines, which are typically not covered — albeit with higher deductibles, Wright says. “That just shows you how aggressive competition is going to start getting,” he says.
The various coverages for different items are complicated. Federal program mapping only affects land-based structures and items such as computers inside a building. It does not include tools, equipment, dealer inventory, docks and secondary structures. “Those items are still the wild West — they’re not regulated by any state,” Wright says. “It’s an absolute free-for-all from one carrier to the next to negotiate a price based on what they think they need to make a profit.”
Given that reality, some marina owners opt out of the market altogether. Seventy of the marinas Wright covers do not carry flood insurance. “They manage the risk of flood themselves, especially these older marinas and dealers who have been around for a long time,” he says.
Those properties often are paid off, so the owners don’t have to adhere to a lender’s requirement to carry insurance. “With the premiums being charged, they don’t feel like it’s worth it over a period of time,” Wright says.
For example, Wright’s office on Judas Creek, a tributary to the Manasquan River, has flooded once in 32 years, causing $25,000 worth of damage. But the annual flood premium was $4,000, meaning it would’ve cost Wright $128,000 to insure against that risk over time.
As waters continue to rise, Madeja says she would like to see state and federal governments contribute more toward infrastructure improvements and turn more coastal properties over to marinas, since they can be engineered to be nearly flood-proof, or at least flood-resistant.
There’s pressure for marinas and boatyards to pay all the costs of repairing or raising seawalls, but they don’t always own the property, Madeja says. In Massachusetts, for instance, the property is owned by the state; however, the state government is reluctant to pay for repairs on commercial space that it rents to the marina, creating a more complicated insurance issue.
“If they can’t dredge, they’re just going to get flooded on land,” Madeja says. “If you dredge out a bed, you’ve got more room to contain water. Many places aren’t dredging even though it’s a Commonwealth-owned property. That’s because on top of that Commonwealth-owned property are privately owned docks.”
Forward-thinking jurisdictions are looking at ways to ban development in areas that are never going to be climate-safe, but they are not thinking about the fact that boatyards and marinas can be engineered to withstand coastal surge, Madeja says. “You can build them safely if you have the right materials and sophisticated engineering,” she says. “The problem is, renovating existing facilities costs a fortune that most businesses don’t have.”
The permitting process for elevating a seawall and channeling tidal surge is still complicated and difficult, Madeja adds. “If the government owns the infrastructure, they should pay for repairing the infrastructure,” she says. “If the government doesn’t own the infrastructure, they should find ways for a private party to make use of the engineering that’s available by making the permitting process more streamlined for adapting to climate change.”
This article originally appeared in the September 2019 issue.