Flood Insurance – Postponement is not a Solution

The Biggert–Waters Act of 2012 was aimed at tackling the crippling $24 billion deficit that the National Flood Insurance Program (NFIP) found itself in. The massive subsidies that the Program had to bear created a situation where the continuation of the system was unviable. The reform of 2012 was aimed at rationalizing the premiums so that the Program could become financially viable and stop being a massive burden on the taxpayers. This makes sound economic sense but the problem is that the sharp increase in insurance ratescould cost millions of people across the country to lose their homes or face. How bad is the situation? An example would be a Long Island homeowner who still has a hole in her house from Superstorm Sandy. Her flood insurance premiums have gone up from a pre-Sandy amount of $850 to $2,200 now. Or take the case of a Penn. homeowner put his home up for sale but was as surprised as the prospective buyer to find that the new annual flood insurance premiums would be over $7,000 higher than the mortgage payments for the same period. Not only did the sale not go through, the seller knows no one will buy the house with that kind of financial burden attached to it. There are millions of cases like this across the country.

Postponement is Good, But…….

The effect in human terms of these homeowners would be catastrophic. And financial impact on an economy that is still not through with its recovery would massive. That is why lawmakers have no passed another reform that will delay the proposed increases, at least partly. For businesses and owners of second homes, the increase will be mandatory 25% per year. For other the increase is now capped to 18% a year, but FEMA had the option to reduce the amount of the increase. This is good news, but all that it really does is to postpone the day of reckoning. FEMA now has 18 months to submit an already overdue report on flood insurance affordability. It has 36 months to find a way to help policy holders who cannot afford the increased rates. A target of limiting annual premiums to $2,500 for $25,000 in coverage exists, but how is this to be reached without bankrupting a program that is already charging more than that in many cases?

Over 1 million policy holders will see their premiums rise significantly over the next few years. There are hundreds of coastal communities, port towns and river cities where the increase in rates will make it very difficult for people to keep their homes. But if the premiums stay low as they are now, any serious flooding could cost the taxpayer billions of dollars.

Using the Respite Wisely

Homeowners cannot afford to have the situation continue to drift in the way it has over the last few years. At the same time, the Program cannot be allowed to remain a burden on the taxpayer. Many proposals are emerging that could help to achieve a balance between protecting the homeowner and enabling the Program to stand on its own feet. Among them are giving vouchers that can be used to offset the rate increases to those who elevate their home on pilings, high foundations etc. Raising homes is expensive but the cost, in terms of loan repayment, could be less than the proposed increase. Some form of relief from the rate increases for those who are unable to raise their home but can move electrical and heating equipment to less vulnerable areas and are able to install water tight doors and windows is another possibility. There is also a private flood insurance program that costs only half of what NFIP does and also does not need an elevation certificate which cost $1000 and is required by the NFIP.

The latest reform has given homeowners and lawmakers a little time. It must be used wisely. It will be a shame if, a couple of years done the road, we continue to be faced with the problems of an unviable flood insurance program and rate increases that will cause people to lose their homes.

Have questions about your flood insurance and home insurance? Insurance by Allied Brokerscan help you. The expertise we have gained over the 50+ years of our experience in the Bay Area will make it easy for you to find the best coverage at the best price. Call us at (650) 328-1000.

Customer Alert: Flood Insurance Policy Holders!

Don't Pay Your Renewal Bill Late! It Will Cost You Lots Of Money!!!

All property with a federally insured loan requires flood insurance. If you are late, the new 2012 flood insurance rules will force you to get an elevation certificate ($600-$2,000) and pay 33% higher rates immediately.

The new rules under The Biggert Waters Flood Insurance Reform Act of 2012 will raise everyone's rates for flood insurance, but the increases will be phased in over time for people with existing policies that started before July 6, 2012.

The goal is that everyone will eventually pay the same rates. Here is how it affects you:

1. People who pay 30 days late or cancel are forced to get an elevation certificate and pay the full new rates immediately.

2. If you purchase a new home, Title Change, or switch carriers, you will need an elevation certificate and will pay the full new rate.

3. Owner Occupied Principal Residences (OOPR) insured before July 6, 2012 - No elevation certificate is required and there is only a 5% annual rate increase.

4. Grandfathered OOPRs-these people have special lower rates and will see a 20% annual increase until they get to the full new rate. This will begin in the middle of 2014.

5. Secondary Residences, Rental Properties, and Commercial Buildings will see a 25% annual rate increase until the full new rate is reached. This has already begun for renewal policies on January 1, 2013.

An elevation certificate must be completed by a licensed surveyor. Each home has a different elevation, so it is needed to accurately determine how much to charge to insure your house. If your house is higher elevated, it costs less, and lower, it costs more. The cost for this service can be between $600-$1,200.

Failing to get an elevation certificate means you will get a provisional rate with the highest possible cost. In Palo Alto, this rate is $6,500 vs. $2,000 with an elevation certificate. After one year without an elevation certificate, you will be cancelled and your bank will place forced coverage at an even higher rate.

Call us (650-328-1000) for help with your flood and any other insurance issues.

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.