Flood rates going up, 25 percent

By Steve Estes

Federal flood insurance subsidies for second homes and rental homes in the Florida Keys are coming to an end.

And subsidies for primary residences will be taking jumps upward over the next decade. Flood insurance premiums for inland properties in areas identified as AE zones, will see a six percent jump on the next renewal if the home was built after Jan. 1, 1975. Homes in an AE zone built prior to that date will see increases of 16 percent, according to a recent release from the Federal Emergency Management Agency which oversees the National Flood Insurance Program.

Homes located in a V zone, or most open waterfront homes in the Keys, will see an 11 percent increase if built post-FIRM and a 17 percent increase if built pre-FIRM.

After suffering large hits from Hurricane Katrina and Ivan, the NFIP estimated that it faced a shortfall of about $18 billion in keeping the program viable.

“FEMA needed to correct that $18 billion deficit so they began phasing out subsidies,” said John Isaksen, broker at Isaksen Insurance on Big Pine Key.

He says the biggest hit will be felt by non-primary residences, and possibly commercial properties.

“The rates for non-primary properties and rental homes will increase 25 percent per year for the foreseeable future,” he said.

At this point there is no end game for the rate increases, says Isaksen. “We haven’t been told anything other than the increases will stop when the rates have reached parity.”

Flood insurance is a requirement for homes in the Florida Keys that have a mortgage backed by any federal agency. The homes must be insured for 80 percent of replacement value on primary residences up to the coverage cap of $250,000. Damage above that cap caused by flooding will not be covered.

Isaksen said FEMA has also lowered its non-insured payouts to property owners in flood hazard areas, capping those payouts at $39,000 regardless of the amount of damage done.

“People got used to large FEMA payouts if they had no insurance, so they didn’t carry any. Now with the cap, they’ll face large losses on their own,” he said.

Many of the subsidy cuts will phase in for policies that renew later this year. The 25 percent increase on non-primary and rental homes begins with policies that renew after Jan. 1, 2014.

FEMA also announced that subsidies for other classes of property will start to be phased out later this year and could include total elimination of subsidy rates for even primary homes.

“We aren’t sure what’s going to happen with commercial property rates,” said Isaksen. “FEMA isn’t sure yet what they intend to do there.”

But he said he suspects that commercial rates will also rise, though no one knows yet at what level.

Following serious storm seasons for nearly the last decade, although not in Monroe County where the last major storm season was 2005, incremental rises have popped up on the renewal bills of nearly every policy holder. Those losses at the federal level have also prompted most private insurance companies to stop writing flood insurance unless it carries the federal subsidy.

There is very little property owners can do to fight the rising rates in coming years, particularly here, said Isaksen, since homes and businesses are already elevated above the flood plain in most cases.

He said that if your policy carries a deductible amount less than the maximum of $5,000 you can increase the deductible and possibly get a rate break.

“Other than that, pay off your mortgage and drop flood coverage,” he said.

Even though subsidies for primary residences will continue, at least for now, the increases are expected to continue until FEMA determines that it has covered its $18 billion shortfall.

But owners of primary residences can lose their subsidized rates under several different scenarios. If your home doesn’t currently have flood insurance and you decide to purchase a policy, you will not get rate subsidies.

If you sell the home, the new buyer will not get a subsidized rate. If you allow the policy to lapse for any reason, the subsidies will be withdrawn and you will pay actuarial rates to renew.

And, if the property sustains repeated flood loss from storms, the subsidized rates can be withdrawn by NFIP program managers.

FEMA officials suggest obtaining an elevation certificate if you don’t already have one so that a more realistic rate can be calculated. If the home is ground level, raise it above flood plain. If you don’t already have vents or breakaway walls below first-floor elevation, consider installing them.

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