Homeowners May Soon Experience Flood Insurance Premium Increase

Thanks to legislation passed last year aimed to help aid FEMA deficits after multiple natural disasters, homeowners both in and around flood areas are finding their insurance premiums are being increased. Some homeowners in East County have already experienced an increase in their renewals.

The culprit of the increase in premiums are from the Biggert-Waters Act of 2012 which was  designed to make the National Flood Insurance Program (NFIP) more financially stable, and ensure that flood insurance rates more accurately reflect the real risk of flooding. The Act was passed to stabilize the cash-strapped NFIP by phasing out subsidized flood insurance and allowing them to increase by 20 percent to 25 percent per year until they reflect the actual cost of flood risk.

For example, beginning this year there will be changes addressing rate subsidies and a new Reserve Fund charge will start being assessed. There are also provisions to adjust premium rates to more accurately reflect flood risk.

The media is highlighting these increases across the country as folks are experiencing increase of over $10,000 a year annually and showing the Biggert-Waters Act of 2012 as the cause.

For example, here are some rate increases we have gathered from stories across the county:

• Bethel Island: KTVU reported that a homeowner on Bethel Island saw their flood insurance rate increase from about $2,100 to over $12,600 annually.
• Rural Sacramento:  The Merced Sun Star reported that in the Point Pleasant area south of Elk Grove, a 1,500-square-foot home will increase from $800 to $4,500 per year.  Meanwhile, in Yolo County’s Merritt Island a home’s flood insurance increase from $1,000 annually to an estimated at $12,079 a year.
• Hawaii: About 43,000 homeowners in Hawaii will be affected by the legislation according to HawaiiNewsNow. A realtor shared the story of one homeowner who recently saw their bill go from $6,000 to $14,000 annually.
• New York City:  According to the Democrat and Chronicle, a recent Rand Corporation study commissioned by New York City estimates property owners in the highest-risk areas could face annual premium increases of $5,000 to $10,000 that could lower their property values.
• Florida: The Insurance Journal is reporting a waterfront home in Florida went from $2,000 a year to $14,000 a year for flood insurance.

In the Insurance Business America, Rep. Randy Neugebauer, chairman for the House Subcommittee on Housing and Insurance, suggested reports of premium increases of 300, 500 and even 1000% were “a lot of rumors.”

“What we’re trying to do is separate fact from fiction here,” Neugebauer told subcommittee members and witnesses.  “And we’re hearing a lot of rumors. And some of those rumors…it turns out are not as represented.”

According to the FEMA website, more than 80% of policyholders (representing approximately 4.48 million of the 5.6 million policies in force) do not pay subsidized rates.

• About 20 percent of all NFIP policies pay subsidized rates. Only a portion of those policies that are currently paying subsidized premiums will see larger premium increases of 25% annually starting this year, until their premiums are full-risk premiums.
• Five percent of policyholders – those with subsidized policies for non-primary residences, businesses, and severe repetitive loss properties – will see the 25% annual increases immediately.
• Subsidies will no longer be offered for policies covering newly purchased properties, lapsed policies, or new policies covering properties for the first time.
• The 80% of all NFIP policies that already pay full-risk premiums will not see these large  premium increases. Most policyholders will see a new charge on their premiums to cover the Reserve Fund assessment that is mandated by BW-12. Initially, there will be a 5% assessment to all policies except Preferred Risk Policies (PRPs). The Reserve Fund will increase over time and will also be assessed on PRPs at some undetermined future date.

Will East Contra Costa County feel the sting?

According to Tim Biglow of Biglow Insurance Agency, he explained that most of East Contra Costa will not see a huge increase like some of the areas in the country. While some areas in East County will experience an increase the most he has personally seen is a 10% increase in policies that are set to renew by January 2014.

“The maximum rate increase I’ve seen in East County is 10% so far. I know back east they have some rate increases 10x what they are paying now,” said Biglow.  “It doesn’t mean it won’t happen but I have not seen it yet.”

Biglow suggest that folks who are hit with an increase to work with your insurance agent and see if there is anything you can do which includes sometimes challenging the mapping.

Dirk Zeigler, Zeigler Insurance, states that everyone pays into the National Flood Insurance Program and that FEMA is in need of funds so just because we have not had a natural disaster here, doesn’t mean our rates won’t go up.

Zeigler stated that areas like Bethel Island, Byron and parts of Discovery Bay could be most affected locally by the Biggert-Waters Act of 2012.

“These big disasters on the East Coast cause them to pay out huge amounts of money so they have to figure out how to pay for it. Sometimes insurance premiums increase to be able to pay for the next disaster or they can just issue non-renewals,” explained Zeigler.

Zeigler agrees with Biglow that you can fight an increase, but you should work with your local real estate agent, insurance agent or a professional to be sure to make sure your flood zone is not misclassified or you will be paying more than you are supposed to.

“Sometimes the flood zone has not been updated on FEMA and they are looking at old data. You can go in there and petition and see if it’s been remapped,” said Zeigler. “It shows them in a flood zone of a risk of every 100 years and they go from $1,500 a year to down to $350 a year. I’ve had that happen quite a few times.”

Laurel Miller of Brentwood shared that she has been fighting the flood insurance game for nearly 4 years stating that she is the only home on her street forced to have flood insurance.  Recently, she got a letter in the mail stating her flood insurance is going from just under $400 to nearly $2,000.

She vows to fight the increase and plans on hiring an engineer to check the flood area and be re-surveyed. She explained its not a quick process in dealing with not only Brentwood, but FEMA.

Cathy Daniel of Ridgewater Real Estate Services explained that any increase in fees (no matter what it may be) do hurt the sale of homes. In terms of flood insurance, she encourages folks to read their natural hazard exposure packet very carefully when purchasing a home around the delta areas so you know what you are getting into.

“Any kind of tax that adds to the house payment is going to hurt the value of a home and that much more of a decrease in the value of a home,” said Daniel. “We do not yet know the outcome of this law. What constitutes a flood, an inch of water or a foot of water and what rate are they going to pay?”

Daniel does agree the FEMA funds do need to be replenished, but would like Congress to further look at fixing the law before hurting homeowners.  She would also recommend better management over the fund as well. She said realtors and insurance agents can best help homeowners challenge FEMA flood zones and mapping.

Lawmakers Search for a Fix

According to the Houston Chronicle, Members of a House panel criticized the Federal Emergency Management Agency on Tuesday afternoon for failing to complete a study that would determine the impact rising flood insurance rates, caused by current legislation, could have on home and business owners and decide how to implement the law in an affordable way.

Craig Fugate, a FEMA administrator who was a witness at the hearing, told the House Financial Services Committee that the study was not completed because the amount of funding and timeframe given for the affordability study would not be sufficient.

But Rep. Maxine Waters, D-Ca., said Congress was not notified about this and blamed Fugate and the agency for not completing the study, leading to the increase in rates caused by the Biggert-Waters Act of 2012.

“How do you determine what is affordable at what income at what level?” Fugate said. “That is not something FEMA does.”

Fugate said he is supportive of completing an affordability study, but it is important to make sure the income from the program is enough to pay for the exposed risk of flooding.

On October 28, Congresswoman Maxine Waters (D-CA) has spearheaded a broad, bipartisan coalition of 95 Members of the House of Representatives in introducing a legislative solution to fix the National Flood Insurance Program (NFIP) and ensure changes are implemented affordably.

“The Biggert-Waters legislation was designed to address a $24 billion deficit and ensure millions of American homeowners could continue to purchase flood insurance. But FEMA’s poor implementation, inaccurate mapping and incomplete data has led to unreasonable and unimaginable increases in premiums. From the moment I learned of the unintended consequences of the Biggert-Waters legislation, I have made clear that I would lead the effort to resolve the problems that have resulted,” said Waters.

Specifically, the legislation will accomplish the following:

• Imposes a delay likely to total four years for the most vulnerable properties, by delaying implementation of rate increases until two years after FEMA completes an affordability study, which was mandated in Biggert-Waters but not undertaken. FEMA has estimated it will take two years to complete the affordability study. It would then take up to an additional two years for FEMA to submit an affordability framework to Congress and for Congress to review the framework. This means rate increases would be delayed for four years in total. The delay applies to: primary, non-repetitive loss residences that are currently grandfathered; all properties sold after July 6, 2012; and all properties that purchased a new policy after July 6, 2012.
• Requires FEMA to propose an affordability framework that addresses the identified affordability issues within 18 months after the completion of the study and provides six months for Congressional review.
• Allows FEMA to utilize National Flood Insurance Funds to reimburse policyholders who successfully appeal a map determination.
• Eliminates the 50 percent cap on state and local contributions to levee construction and reconstruction.
• Protects the so-called “basement exception,” which allows the lowest proofed opening in a home to be used for determining flood insurance rates.
• Establishes a Flood Insurance Rate Map Advocate within FEMA to answer current and prospective policyholder questions about the flood mapping process.
• Requires FEMA to certify that the agency has fully adopted a modernized risk-based approach to analyzing flood risk.

On November 14, Congressman Jerry McNerney called on FEMA to make Flood Insurance Premiums affordable in a letter—specifically requesting assistance for the Smith Canal Area in San Joaquin County.

“In San Joaquin County, we know how vital flood insurance and protection are to our homes and communities.  However, the premiums people pay should accurately reflect the risk they face of incurring flood damage to their properties.  In the Smith Canal area, progress has been made, and FEMA should recognize that,” said McNerney.

http://mcnerney.house.gov/media-center/press-releases/congressman-mcnerney-calls-on-fema-to-make-flood-insurance-premiums

Insurance Companies Back Law

The National Association of Mutual Insurance Companies (NAMIC), whose members sell and administer policies under the flood insurance program, said it would be a mistake to dismantle reforms approved only a year ago by Congress to make the program, now $28 billion in debt, more fiscally sound.

“It’s understandable, from a political perspective, that elected officials don’t want to be seen as the reason for higher flood insurance premiums, and no one wants to see homeowners face a true hardship,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC. “At the same time, however, there are millions of policyholders who rely on the NFIP for flood insurance and who deserve a program that will be able to meet its obligations. As it stands, that cannot be said of the NFIP, which owes roughly $28 billion to the taxpayers and is why these reforms were passed in the first place. Delaying the reforms adopted under the Biggert-Waters Act means a return to the days of the NFIP needing taxpayer-funded bailouts.”

On November 19, the NAMIC made the following suggestions in a Press Release:

In testimony submitted to the House Financial Services Housing and Insurance Subcommittee in advance of a hearing today, NAMIC outlined several steps Congress could take to help homeowners more easily afford coverage without risking the NFIP’s future.

They include:

• Means-tested assistance to property owners for whom risk-based rates would create genuine hardship.
• Low interest loans or grants to finance property owners’ investment in mitigation.
• Encouraging higher deductible flood policies.
• Allowing property owners to establish tax-exempt flood loss accounts to pay out-of-pocket flood costs.

Delta Protection Commission

The Delta Protection Commission will be meeting tonight at Oakley City Hall where they will receive a report on the National Flood Insurance Program and federal legislative efforts to amend the controversial Biggert-Waters Act of 2012

The meeting begins at 6:00 pm at Oakley City Hall located 3231 Main Street, Oakley, CA 94561