Thursday, October 17, 2013

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.

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