Understanding the changes to flood insurance

Homeowners have options for help

cschelle@bradenton.comSeptember 29, 2013 

MANATEE -- The National Flood Insurance Program, now 45 years old, has gone through a rough decade that left it $24 billion in debt.

Damage to the flood insurance program has mounted as the federal program paid the clean-up costs from Hurricanes Katrina and Rita and Superstorm Sandy. Those costs prompted the Biggert-Waters Flood Insurance Reform Act of 2012, which is designed to make up for losses to the National Flood Insurance Program, created by

Congress in 1968.

There are no rainy day funds to pay for the nation's rainy day fund. And the losses have to be reversed.

And the Biggert-Waters act puts the costs of making up those funds squarely on Floridians' shoulders.

Floridians carry the most flood insurance policies in the nation and contribute more money to the program than any other state. They are also about to see the highest increases in their premiums, set to take effect Oct. 1, 2013.

Those hikes are expected to take place as soon as Tuesday in a move the government calls "eliminating subsidies." Anyone who gets a new flood insurance policy will have to pay what the government estimates is the real costs, based on risk. Some flood policies will actually be higher than home insurance policies.

How we got here

Florida has the most flood insurance policy-holders at more than 2 million, and since 1978 has the second most claims in the program at 240,374. It ranks fifth in total payments at $3.7 billion, behind Louisiana, New Jersey, New York and Texas, according to FEMA data. Manatee County has the 10th most subsidized policies in the state -- based on estimated risk versus cost -- with 11,264 policies, according to FEMA.

But it's those very estimates and the structure of the program that has rankled Florida's elected leaders.

Florida contributes 3.6 times more than it receives from the program, according to a study by the University of Pennsylvania Wharton Center for Risk Management and Decision Processes.

The study, which looked at claims from 1978 to 2008, and accounts for inflation, found that Floridians paid $16.1 billion in premiums and received $4.5 billion in claim payments. Colorado had the highest ratio of policy-holders paying into the program while receiving the least amount of claim reimbursements, according to FEMA. But that was before the recent devastating floods there.

In Manatee County, the flood insurance program paid out $27.1 million in claims from Jan. 1, 1978 to July 31, 2013, for 3,084 losses, according to FEMA data. More than 1,200 claims didn't receive payment, according to FEMA.

In the grand scheme of housing in Manatee County, that might not seem like much given Manatee County's 172,690 homes. But as David Thompson, education instructor for the Florida Association of Insurance Agents, puts it, the situations are very much personal.

"It'll be a select group of people who experience sticker shock, but it doesn't matter how small if you're the one," Thompson said during a recent training seminar to help educate insurance agents around the state about the impending changes.

It's not just Floridians who are trying to stop the increases, either. The Mississippi Department of Insurance filed a lawsuit Thursday against the federal government to try to block rates from increasing Tuesday.

Some in Congress are also trying to delay the implementation, but as Washington leaders are debating a government shutdown, there doesn't appear to be time to have President Barack Obama sign a bill for a moratorium.

Earlier this year, the House of Representatives passed a homeland security spending bill that included language to delay some of the increases, but the Senate can't agree on parts of that homeland security bill. As a way around that, Sen. Bill Nelson on Wednesday filed to amend House Journal Resolution 59 to enact a one-year moratorium on the flood insurance reform.

Here's the problem with that: H.J. 59 is the spending bill to keep the government at sequestration levels, and has been muddled with other issues, including attempting to defund the Affordable Care Act, also known as ObamaCare. The House would also have to pass that bill, which is also under an Oct. 1 deadline to avoid a government shutdown.

Who sees the sticker shock?

Homes in a Special Flood Hazard Area will see the greatest increases. This is considered a high-risk zone for 100-year floods, and includes zones A, V and D. The low- to moderate-risk zones, or 500-year flood Zones B, C and X, will see smaller increases.

Pre-Flood Insurance Rate Map homes in the V and A zones will see the largest increases at 17 percent and 16 percent annually over the next five years. Those who purchased a preferred risk plan because their property was mapped in a high-risk flood zone after Oct. 1, 2008, could get an extension, but those rates will increase 20 percent annually, and that plan could be eliminated soon, too.

Next year, Manatee County's flood insurance rate map will go into effect as mandated by FEMA, and those changes prompt a five-year phased increase at a cap of 20 percent each year for all homes in the Special Flood Hazard Areas.

Those who don't have a subsidized plan could still see increases. The rates of 28,763 policy-holders in Manatee County could increase next year, too, depending on the location of the property in new flood insurance rate maps the county is expected to adopt by March 17. Each Manatee County municipality and unincorporated Manatee have flood maps for which rates are based, and many are from the 1980s and early 1990s.

Save money while you can

Finding discounts on rates will be more difficult, and some discounts will be going away soon.

One way to save money is by taking advantage of the Grandfather Rule, Thompson said. However, grandfathering could also be phased out, and Thompson encourages people to "ride the wave of grandfathering while it lasts."

Grandfathering is when a homeowner buys a new policy before the new flood maps kick in, or has proof that the home was built to comply with the flood map in use at the time of construction, according to the National Flood Insurance Program's website, FloodSmart.gov.

But grandfathering can't be passed on if the home is sold, Thompson said. They'll pay the full rates from the first day they own the home, and will have to get an elevation certificate.

The grandfathered rates will be phased out, but FEMA hasn't given direction on how that will be implemented.

"Does that mean just people who bought policies after 2012, or all the people we sold polices to over the last 20, 30 years are not subjected to the discounted rate?" said John Laurie, agency executive for BB&T Insurance Services in Bradenton. "That's the confusion that's out there for us."

Homeowners have some protection if their home is going into a 100-year flood zone and if the natural grade is above the base flood elevation, said Sandy Tudor, floodplain investigator for Manatee County. Policyholders can submit a Letter of Map Change to be exempt, and if fill was used, there would be a charge, but not as high as a full increase, Tudor said.

But entire neighborhoods can't apply for the exemption, she said.

Key changes in the county's flood map are in the eastern Buffalo Canal area, low-lying areas near ponds in East Manatee, wetlands and more inclusion of the Wares and Cedar Hammock creek neighborhoods, Tudor said.

Still, about 20 to 25 percent of all flood insurance claims are in low- to moderate-risk zones, according to FEMA. Because of that likelihood, Laurie recommends that people not in high-risk zones buy a preferred risk plan before it's phased out to take advantage of a lower rate. Plans could start out at $129 for homeowners and $30 for renters.

It's also a tool for homes placed in high-risk zones that haven't had any previous claims. That preferred risk plan allows policy-holders to renew for two years after the new flood maps take effect, and on the third renewal, rates for moderate- to low-risk zones will be applied instead of high-risk zones rates, according to FloodSmart.gov.

Thompson is encouraging Pre-Flood Insurance Rate Map homeowners to find a surveyor now for an elevation certificate to help provide some relief on rates. The certificate verifies the lowest floor elevation compared to the ground, to assure that the contents of the home have a lower damage risk because they are above the baseline flood elevation.

Elevation certificates are also required in new, lapsed and assigned policies, Thompson said, and already required for homes built since the Flood Insurance Rate Map went into effect. Policies purchased before July 6, 2012, do not require an elevation certificate if the policy does not lapse or isn't assigned.

The demand for these surveyors is already being seen locally. Laurie said there is a backlog of requests for the surveyors, and in some cases folks are being quoted prices from $700 to $800 -- nearly double the standard price. Prices are going up, but surveyors should cost somewhere between $300 and $500 for elevation certificates, he said.

In some cases, obtaining a certificate isn't as easy as calling the surveyor to get a piece of paper.

"We get situations where people don't think about how they might have a slab or floor above elevation, but they might have a hot water heater in the garage or A/C unit outside," Laurie said. "They're required to go to the lowest level where equipment is."

Spending a couple hundred dollars to change the location of a water heater or AC unit could save a few thousand dollars on flood insurance, he said.

What else is affected?

Primary, single-family homes and duplexes aren't alone in the increases.

Vacation homes are already seeing increases. As of Jan. 1, a non-primary dwelling, pre-Flood Insurance Rate Map home were hit with a 25 percent increase. These homes are typically for snowbirds, and are not occupied for at least 292 days of the year by the named insured or their spouse. Florida has 36,807 of these homes affected by this measure, Thompson said.

Businesses with subsidized premiums will also see a 25 percent annual increase until the rate is reached, affecting 10,964 businesses in the state, Thompson said. Those businesses seeing the highest increases would have a pre-Flood Insurance Rate Map building in a Special Flood Hazard Area or Zone D.

But wait, there's more in 2014

More changes are expected to come in 2014 and beyond, but FEMA has yet to give direction on how the law will be implemented, Thompson said. Grandfathering, as previously mentioned, is one area that is anticipated to be phased out, but how that happens remains to be seen.

New deductible limits are expected to take effect after 2014, too. For pre-Flood Insurance Rate Map properties, if coverage is $100,000 or less, it's $1,500; for more than $100,000, it's a $2,000 deductible.

For post-Flood Insurance Rate Map properties, it's $1,000 for coverage of $100,000 and less, and $1,250 if coverage is greater than $100,000.

Lenders will be heavily scrutinized, too. If mortgage companies are late by one day paying flood insurance policies, it will prompt rate increases. If lenders don't have the proper flood insurance on the homes they are financing, the penalty increases from $350 per loan per day to $2,000 per loan per day with no annual cap, Thompson said. Lenders will then have more calls coming into insurance agencies to verify coverage, he said.

An installment payment option to allow homeowners to place a down payment on the policy to help ease monthly payments will be implemented after 2014, Thompson said.

Apartment buildings and cooperatives will be able to buy $500,000 total of building coverage, but Residential Condominium Building Association Policy is limited to $250,000 multiplied by the number of units.

Charles Schelle, business reporter, can be reached at 941-745-7095. Follow him on Twitter @ImYourChuck.

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