Thursday, October 17, 2013

New Home's Flood Insurance Shocks Floridians

Suppose that you have retired after many years of hard work; that you have been financially prudent all your life and when you call it a day you have enough to buy a home and live comfortably. You may not be rich, but you will be able to live in comfort. And then, after you buy you home and settle in, suppose you find that your flood insurance rates have gone up tenfold. Will you be able to weather the shock? Or will you have to lose your home and watch your plans for a peaceful retired life go up in smoke?

This is not a nightmare “what if….” scenario. It is happening to a vast number of homeowners today. The reason is the Biggert-Waters Flood insurance Reform Act of 2012. After being inundated with claims after Hurricane Katrina, the National Flood Insurance Program was on the verge of insolvency. The act aims to revise flood insurance premiums upwards so that the Program can continue to operate. To clarify the kind of impact that the new rates will have, a home where the flood insurance premium was $1,500 per year may now have to pay$12,000 a year, which is what happened to a Floridian couple who recently bought a home.

Who’s To Blame?
When situations like this arise, it’s natural to look for a person or agency to blame. But in this case, there are no real bad guys. FEMA Director Craig Fugate admits that the homeowners will feel the “sticker shock.” But he says that flood insurance is being provided at below market rates and that the government has been borrowing money to enable the subsidy to continue. This is obviously a situation that cannot remain indefinitely. The removal of the subsidies and making homeowners pay realistic rates will remove this financial burden from the government.

While the economic argument makes sense, the fact that a huge number of homeowners in flood zones will suffer remains. For those who bought their homes before the Act came into force, the shock will be less, but still major – they wills see their rates increase by about 25% a year. But recent home buyers and those insuring secondary homes will have to pay the full increase from the get go. To add insult to injury, many of those affected by the proposed increase do not live anywhere near any body of water. But because they are in low lying inland areas, they are in flood zones.

What Can Be Done?
A bipartisan effort was recently made to introduce a bill that would delay the implementation of the Act for a year. This would have allowed for time for the impact of the increased rates on homeowners to be more fully considered and for strategies to reduce the impact to be found. The search for other alternatives could also have been conducted. But unfortunately, partisan politics and the fight over Obamacare have brought the government to a standstill. By the time a solution is found and the shutdown is over, the move may be lost in a sea of pending legislation and overdue government decisions.

The government can no longer afford to subsidize flood insurance rates. And many homeowners will not be able to pay the new premiums. It is the job of government to find solutions to these problems that offer the greatest good to the greatest number. Hopefully something will emerge before people begin to lose their hone over the rate increases.

Flood Insurance Rate Hikes Delayed Due to Government Shutdown

The effects of Hurricane Katrina are being felt, with increasing impact, even today. The onslaught of flood insurance claims that followed the catastrophe created huge financial problems for the National Flood Insurance Program. The Biggert-Waters Flood Insurance Reform Act was passed in 2012 (BW-12) in order to keep the Program solvent. A bipartisan proposal to delay the implementation of the rate hikes that the act envisages has been blocked by the congressional dispute over Obamacare and the consequent government shutdown.

The proposed increase in flood insurance rates has all the stakeholders, except the insurance companies, worried. A look at the situation in Florida will explain why. The state has more people covered by subsidized flood insurance than any other state in the country. Everyone, from the Governor down, is worried that any increase in insurance rates could have an adverse impact on the real estate market which is only now beginning to get back on its feet after the recent recession.

Who Gets Hurt?
Pinellas County in Florida, which includes the city of St. Petersburg, has more subsidized flood insurance policies than any other county in the nation. It is estimated that about 33,000 hoes will be affected by the proposed increase. The median value of these homes is $132,245 and the average size is approximately 1,430 square feet. These are not the homes of the super-rich – they belong to middle class homeowners. Surprisingly, about 66% of these homes, which will be subjected to the rate increase, do not have either a water view or water frontage. The impact of the increase on these homeowners could be devastating.

And Florida isn’t the only state to be worried about the situation. The Mississippi Department of Insurance is trying to block the proposed increase by filing a lawsuit. Louisiana is considering action that will enable the state to sell flood insurance to residents. Other state may soon consider following suit. California too will be impacted by the proposed premium increases.

The amount of the proposed increase is not small. Under the new rules, all those who bought homes in flood zones after July 6 of last year, when the act was signed into law, will face insurance premium increases of up to ten times what they are currently paying. Those who owned property prior to that date will be faced with annual flood insurance premium increases of up to 25% per year.

The definition of flood zones is also controversial. While many of the affected properties are on or near the Gulf Coast, many of those that will be affected by the rate increase are located quite far inland. But since they are in low lying areas, they are considered flood zones for the purpose of the rate increase.

A Solution Is Needed Fast
Obviously the National Flood Insurance Program cannot be allowed to fall into financial chaos. Adequate funding to keep it operational is essential. But at the same time, to subject homeowners to such a huge rate increase is not just unfair, it will create havoc in the real estate market that is still in a fragile state.

While both those who support the increase and those who wish to delay it have valid arguments to support their cases, the Congressional deadlock may see this critical proposal fall by the wayside and become mired in the quicksand of partisan politics and result in many people suffering undue financial hardship for no fault of their own.

How Property Owners Can Protect Themselves

Talk to Insurance by Allied Brokers today and know your options. You’ll need to know about if your property is located in a Special Flood Hazard Area (SFHA) and your property’s elevation in relation to the Base Flood Elevation (BFA). You’ll also need an elevation certificate to accurately determine the premium rates. Contact allied brokers at (650) 328-1000 with your questions about BW-12 and how it would affect your policy.