Change in rating systems will cost Lee County residents millions

A dispute between Lee County and the Federal Emergency Management Agency that could cost residents millions of dollars is drawing attention to the National Flood Insurance Program’s Community Rating System and its role in Florida’s troubled insurance market.

The system assigns points to localities and qualifies certain communities’ residents for discounts that can cut insurance premiums by hundreds of dollars each year.

In this case, the issue bubbled up just at the start of the Easter weekend, when Lee County was notified that it and five localities were being downgraded and local policyholders would lose a 25% discount it qualified for the past 17 years.

The cost of the loss is an estimated $300 a year for policyholders.

According to FEMA records, there are 139,658 NFIB policies in force in Lee, with coverage of $35.5 billion.

The increase is happening as county residents continue to deal with the aftermath of Hurricane Ian and higher premiums from ever-present property insurance crises facing the state.

The key to FEMA’s rating system is the localities, not individual policyholders, must remain in compliance in order to keep the discounts for residents.

According to a FEMA spokesperson, the “discounts provide an incentive for communities to implement additional flood protection activities that can help save lives and property when a flood occurs.”

The ratings system, like most bureaucratic complexities, was an unknown factor for most policyholders and outsiders until something went wrong and, as it so often happens, people learned about it when it was too late.

The NFIP was created in 1968 to provide insurance to help “reduce the socio-economic impact of floods,” FEMA says on its website. The program sells the insurance policies to property owners, renters and businesses through a public-private partnership between the government and insurance companies.

The agency says policies are sold and serviced by more than 50 insurance companies and NFIP Direct.

In Florida, there are currently 1.7 million NFIP policies in place.

As part of the program, FEMA employs the Community Rating System. The system ranks localities from one through 10 based on the “reduced flood risk resulting from the community’s efforts.”

The goals of the system, according to the agency’s website, is to “reduce and avoid flood damage to insurable property and foster comprehensive floodplain management.”

To encourage the communities to comply, the agency offers the premium discounts for rankings that increase in increments of 5%, with class one offering the largest discount — 45%. Class 10, which Lee and the municipalities got downgraded to, doesn't receive any discounts.

Downgrades do not affect coverage, only the premium discounts.

As part of the ratings systems process, FEMA holds site visits. In the case of Lee, it says that “following Hurricane Ian and over the last 18 months, we conducted site visits to several communities to ensure locally adopted floodplain management ordinances were being enforced.”

What it found is that Lee County did not meet the requirement for its five rating and the resultant discount due to the large amount of unpermitted work, lack of documentation and a failure to properly monitor activity in special flood hazard areas, including substantial damage compliance.

On March 28 FEMA informed officials in Lee, Bonita Springs, Cape Coral, Estero and Fort Myers Beach that it would be downgraded beginning Oct. 1.

This decision set off an angry response from Lee County elected officials and others who denied they were warned of the pending downgrade and accused the agency of malfeasance. Some commissioners went as far as accusing FEMA, and the Biden administration, of a political conspiracy.

Yet FEMA, in in at least three separate letters dating back more than year, explicitly warned the county and localities that it was facing the downgrade.

The county, however, argues that it did meet the criteria. On April 2 the county provided media organizations a detailed timeline of its responses and copies of its own letters from FEMA.

One of those letters is dated Feb. 8, 2023 and states Lee will retain its rating and the discount.

While that part of the letter was meant to bolster the county’s argument, it clearly states the consequences the county faces if it didn’t keep up with requirements.

“The CRS rating for your community will automatically be renewed annually as long as there are no NFIP noncompliance actions, so a notification letter will not be sent every year,” the letter says.

“This annual renewal will take place as long as your community continues to implement the CRS activities you certify in your annual recertification documentation.”

Despite this, commissioners voted April 2 to authorize county staff to explore any and all actions that could overturn the decision.

On April 5, a week after officials were notified, the county issued a less-fiery public statement saying it “plans to work with FEMA to address any alleged deficiencies that could help the county and municipalities retain current CRS ratings.”

“The collective goal is to work with FEMA to address any concerns with requested information,” the Lee County statement says.

For its part, FEMA says it too intends to work with the county and the localities to get the discount back in place and has since given the county a 30-day extension.

In an April 5 email to the Business Observer, FEMA spokeswoman Lea Crager wrote: “We are committed to helping communities take appropriate remediation actions to participate in the Community Rating System and remain in good standing with the National Flood Insurance Program.”