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Flood insurance rates to skyrocket for older homes

By Staff | May 16, 2013

Last July, Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW12), which provided for a sorely needed five-year re-authorization of the National Flood Insurance Program (NFIP).

However, FEMA just recently has started to release details of other provisions of the act that will have significant financial impacts on local homeowners, commercial property owners and condominium associations.

Sanibel based Heidrick & Co. Insurance and Risk Management Services (www.Sanibelinsurance.com) was one of just 40 agencies throughout the United States in attendance with FEMA officials at the National Flood Insurance Conference in Anaheim, Calif., last week where details were released and clarified.

The most significant section of the act immediately eliminates rate subsidies on structures built prior to 1979 on Sanibel and 1984 on Captiva, Fort Myers Beach and many parts of mainland Lee County. Rates for these structures have been artificially low since the inception of the NFIP in 1968. Premiums for these policies will increase from a range of $1,200 to $2,400 to at least $3,000 and in many cases to well over $10,000 per year. While the new rates have not yet been released, indications are available. Government and industry leaders all agree on the enormity of the increases.

Residential, Commercial and Condominium Association policies that were in effect prior to the act (July 6, 2012) will have the increases phased in over the next several years through annual increases of 20 to 25 percent per year. However, policies that were purchased on or after July 6, 2012 will require owners to obtain an Elevation Certificate and will be re-rated at the new, higher rate at the first renewal after Oct.1, 2013. Buyers of older, ground-level homes/buildings should have an Elevation Certificate done by a surveyor now and ask their agent how their premiums may be impacted at the next renewal. Some people may struggle to pay premiums that increase as much as 500 percent at their next renewal. Owners of all structures located in a Special Flood Hazard Area and having a mortgage are required to maintain flood insurance.

Selling impacted properties may also become more difficult as buyers who require a mortgage may be reluctant to purchase a property that requires a $10,000 per year flood insurance policy. In some cases the only way to escape the impact of BW12 may be to elevate the building.

And, as if these increases are not painful enough, there are several other provisions in the law that will further increase flood premiums today and in the future.

Any building that has been “substantially improved greater than 30 percent of its fair market value” will immediately be subject to the new, higher rates. This threshold is lower than the “50 percent of fair market value” threshold that triggers conformance requirements under FEMA construction guidelines. However, if the improvement elevates the building above Base Flood Elevation it could result in a decrease in flood insurance premiums.

Building and Community Officials should be advising citizens that there are significant credits provided for exceeding FEMA requirements. Often buildings are constructed to meet FEMA requirements, which are a minimum standard. Exceeding those standards by elevating just one additional foot could decrease flood premiums over 50 percent.

Further, the practice of “grandfathering” will be phased out beginning in late 2014. Grandfathering allows a property owner to continue to pay lower rates after a revision to flood maps indicate an increased hazard for that property, saving some property owners thousands of dollars.

For owners of properties impacted by BW12 there is one glimmer of hope that has recently surfaced. On May 7, 2013, Sen. Mary Landreiu of Louisiana introduced an Amendment to the Water Resources Development Act (WRDA) that would stop premium rate increases for NFIP coverage until FEMA conducts an affordability study and there is adequate time to act on the findings. Homeowners and citizens should contact Sen. Bill Nelson and Sen. Marco Rubio to express their concerns about Biggert-Waters and ask for support of Sen. Landreiu’s Amendment to the Water Resources Development Act.