By Barbara Liston
ORLANDO, Sept 24 (Reuters) - More than a million homeowners living in older houses along the coastlines and riverbanks of the United States are being jolted by federal flood insurance rate hikes under a law passed in the wake of devastating storms.
Carol Giovannoni, 51, of St. Pete Beach, a barrier island community off Florida's west coast, is one of the people dreading Oct. 1, when the law takes effect. Giovannoni said the annual flood insurance premium on her standard 1950s concrete-block, ranch-style home on the waterfront will jump from $1,700 to $15,000 over the next few years. She said her home has never flooded in 59 years.
Were Giovannoni to sell her home, or let her policy lapse, the new rate would apply immediately, she said, but exactly how rates will be calculated under the Biggert-Waters Flood Insurance Reform Act of July 2012 is unclear to many.
Congress passed the law, as it turned out just months before Superstorm Sandy struck the northeastern coast in late October, in an effort to balance a $24 billion deficit in the National Flood Insurance Program, which had growing losses from Hurricane Katrina in New Orleans in 2005 and earlier disasters.
"Once these rates go into effect, the value of our house is probably cut in half. We will have a tough time selling," said Giovannoni, who is a realtor, noting that flood insurance is required by mortgage lenders.
The rate hike is designed to make property owners pay for the true risk of living in high flood hazard areas, including coastal areas of Florida, New Jersey, New York, Texas and Louisiana, and inland states prone to river flooding.
Members of Congress from high-risk flood states want to delay the higher rates coming into effect so they can gather more information on the impact on property owners, but with next Tuesday's deadline, time is running out.
The act requires the Federal Emergency Management Agency (FEMA) to phase out insurance subsidies enjoyed for decades by owners of homes that were built in high-risk flood zones before the creation of the original federal flood insurance rate maps and building standards, which in most communities occurred in the 1970s and 1980s.
Florida is home to more than a quarter of the 1.1 million subsidized properties in the United States, and low-lying coastal Pinellas County west of Tampa - which includes St. Pete Beach - is ground zero. More than one third of the county's 142,000 properties with flood insurance have subsidized rates, according to the Florida Association of Insurance Agents.
NEW MAPS, HIGHER RISKS
The act comes on top of a nationwide re-mapping of flood zones which in some coastal areas has moved some properties into newly widened hazard zones, exposing them to rate increases.
More than 80 percent of the 5.6 million properties nationwide covered by the $1.12 trillion program already comply with existing standards and would not see any change in their policies, at least for the time being, FEMA director Craig Fugate told a hearing of the U.S. Senate Banking, Housing and Urban Affairs Committee on Sept. 18.
Fugate said the rates of those homeowners in compliance could go up too if new maps reveal higher flood risks.
Hit hardest by the rate hike are people who bought a home with subsidized insurance after the law's passage on July 6, 2012. Those new buyers must pay full-risk rates starting Oct. 1, according to a timeline on FEMA's website.
Owners of subsidized policies on businesses and properties that have suffered severe or repetitive loss will face 25 percent rate increases annually on policy renewals after Oct. 1, until rates reflect true flood risk.
Owners of secondary and vacation homes already experienced the first 25 per cent rate hikes in subsidized policies that renewed after Jan. 1, 2013.
All other subsidized policyholders in high-risk flood zones can expect rates to rise about 16 to 17 per cent next year. After that future rate hikes are unknown, but Biggert-Waters raised the annual cap from 10 per cent to 20 per cent.
Critics of subsidized federal flood insurance say the benefits disproportionately favor high-risk and wealthy properties.
"Taxpayers deserve to have those who choose to live in harm's way pick up their share of the tab," Steve Ellis, vice president of Taxpayers for Common Sense, told the Senate committee last week.
He said the biggest impact of the act would be on second homes and businesses.
Robert Hartwig, president of the Insurance Information Institute, compared the impact of Biggert-Waters to the adoption of stronger building codes in Florida after Hurricane Andrew hit in 1992. "That increased the cost of building homes in Florida but it made them safer and more resilient to storms," he said.
But Fugate told the Senate committee that the act needed amending. He said businesses and affluent homeowners could afford the new risk, but added the law unfairly hit middle class homeowners who had not been flooded repeatedly.
One Pinellas County couple who bought a home near the bay last month discovered that flood insurance on the modest $205,000 farmhouse will shoot up from $1,900 to almost $8,000.
"It was a shock, we were in the middle of closing when we found out," said Cristy Assidy, a 39-year-old nurse. She said the 1925 farmhouse, which sits 5 feet above sea level, had never been flooded as far as she knows.
She and her husband, mailman Fred Assidy, went ahead with the purchase. "We took a gamble. Everyone is working class around here, so we're hoping for a reprieve."
Melinda Pletcher, a realtor and city commissioner in St. Pete Beach, said she felt blindsided when a beach home she helped sell after the passage of the Biggert-Waters Act was hit with a $23,000 flood insurance premium.
"I really feel honestly horrible about this," said Pletcher. (Additional reporting by David Adams; Editing by Grant McCool)