Agreement may delay flood premium hikes

Congress is expected to approve legislation this week that could delay, for up to four years, implementation of new flood insurance rates that experts have said could cause a devastating effect on slowly recovering real estate markets.

In 2012, Congress approved the Biggert-Waters Act, a piece of legislation that was supposed to return fiscal solvency to the National Flood Insurance Program.

The NFIP, underwritten by Federal Emergency Management Agency tax dollars, is about $24 billion in the red after massive payouts to victims of Hurricane Katrina in Louisiana and more recently to victims of Hurricane Sandy in New Jersey.

Biggert-Waters was supposed to eradicate federal subsidies for flood insurance for homes that are at or below base flood elevation in coastal communities throughout the country.

In Monroe County, there are some 8,000 flood insurance policies that would have been affected by the new NFIP rates, and none for the better.

“Biggert-Waters was passed by Congress without thought to the economic impact on the policy holders,” said Sue Cherrybon, agent at Johnson’s Insurance on Big Pine Key. “I had one client where flood insurance went from about $2,000 per year to $47,000 per year. That’s like having a full second mortgage or more in some cases.”

With the changes in premium rates looming for the last few months as Biggert-Waters wound down to implementation time, realtors throughout the local area have reported a steeply declining interest in ground level homes in older neighborhoods.

“In some cases, these flood rates would completely devalue pre-FIRM, ground-level homes. No one wants to buy if the flood insurance is going to add $3,000 per month to the mortgage payment,” said Cherrybon.

She says agents, brokers and underwriters all agree that some reform is needed in the program, “But you can’t do it all at once. You’ll drive people out of their homes. We just can’t sustain premiums that high”

Biggert-Waters was supposedly designed to help lift the NFIP out of its deficit status. Prior to the Act’s passage, homes built prior to January 1975, or before the establishment of Flood Insurance Rate Maps by the Federal Emergency Management Agency, parent agency for the NFIP, have been heavily subsidized. It was those subsidies the legislation was supposed to eradicate and bring the premiums for pre-FIRM homes to actuarially sound levels. That, according to Congress, would help rescue the ailing NFIP program.

The new legislative proposal, crafted and sponsored by members from both parties, forces FEMA to undertake the affordability study that was mandated in the Biggert-Waters legislation in 2012 but was never completed prior to implementation.

FEMA officials have estimated that it will take about 18 months for the study to be completed. The newest proposal mandates that FEMA develop rules for the rate implementation that take affordability for property owners into consideration, and carries a six-month moratorium on implementation after that for Congressional review of the new language.

“This is not just affecting the Keys,” said Cherrybon. “Every coastal community that has flood maps is being affected.”

The Keys is probably hit a little less drastically than some other coastal communities because the majority of homes built after January 1975 have been built to flood plain standards.

“Every property has a different flood zone elevation, but as long as the lowest finished floor is at or above base flood elevation, the homes are safe from the worst of the increases.

Cherrybon said she has been advising clients to go ahead and spend the $350 or so to get a surveyor to do an elevation certificate if the home is above base flood.

“If you’re insured based on elevation, the rate is considered actuarially sound,” she said.

While the pressure is off, somewhat, for the next four years or so, Cherrybon said vigilance is still necessary.

“Do not let the flood policy on your home lapse. If you do, the new rates could be invoked,” she said.

The current amendment to Biggert-Waters will still allow for yearly increases, and may still allow for catch-up increases on second homes, rentals and commercial property.

If the latter remains in place, owners of those properties can expect a 25 percent increase in yearly premiums until the premium reaches that as-yet-unknown actuarially sound level.

Cherrybon said all policy holders should also anticipate the standard yearly increase of six to 10 percent going forward.

The local grass roots advocacy group Fair Insurance Rates for Monroe (FIRM) has said that it will take up the mantle of flood insurance in the future,  but right now is tightly focused on its actuarial study for windstorm rates in an attempt to reign in massive rate hikes Citizens Insurance, the state-run carrier, has tried to invoke here for a number of years.

“Members of FIRM were cautiously optimistic to learn that leaders in Congress had reached a bi-partisan plan to delay flood insurance rate increases for at least four years,” stated FIRM in a recent press release.

“This is great news but it’s only a temporary reprieve. We still need a solution for second home owners and clarity on definitions of commercial and business properties,” said Heather Carruthers, District One county commissioner and president of FIRM. “FIRM will continue to work for a long-term solution that includes mitigation options and coverage alternatives that are more affordable.”

Cherrybon said her national contacts have told her that Congress is expected to vote quickly on the Biggert-Waters amendment, possibly as early as this week.

“The amendment must pass both houses of Congress and be signed by the President before the delay takes effect. We can’t let our guard down yet,” she said. “And we have to hope that the gridlock in Congress clears before the four years run out or we’re doing this all over again.”

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