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Flood Insurance

03/20/2014 at 4:24pm

Florida Flood InsuranceReform Bill Passes Congress

A bill designed to give homeowners some relief from high premiums triggered by the Biggert-Waters Flood Insurance Reform Act of 2012 has now been passed by both the House and the Senate and awaits the President's signature to become law. While this is wonderful news and will provide relief for at least 25% of Lee County policyholders, we decided to sit down with insurance experts Chris Heidrick of Heidrick and Co. Insurance and Rickard Karger of Fort Myers Beach Insurance Brokerage to see exactly what this will mean for island homeowners and prospective buyers.

Two weeks ago, the United States House of Representatives passedthe Homeowner Flood Insurance Affordability Act or the 'Grimm-Waters Bill' after it's sponsors Reps. Michael Grimm (R-NY) and Maxine Waters (D-CA). The bill reverses some of the changes made to the National Flood Insurance Program (NFIP) as well as eliminates a provision of Biggert-Waters that says government subsidized rates disappear when a person sells a primary home; provides a refund for those who already got hit under that provision and restores subsidies for "grandfathered" homes that would have been phased out over five years as new flood maps are drawn. The bill also urges the Federal Emergency Management Agency - which administers the insurance program - to peg residential premiums at no more than 1% of the value of their coverage. Additionally, it creates a reserve fund in the event of a major storm or other catastrophe and states that a policy surcharge of $25 for primary residences and $250 for other properties will be collected for the reserve fund. But it does not completely eliminate the reforms passed under Biggert-Waters, which was designed to address the NFIP's $24 billion dollar debt - rather, it gradually imposes the rate increases with the ultimate goal being to eliminate unsustainable flood insurance subsidies.

"First off, let me remind everyone that all of this applies only to older, ground level structures built before FEMA flood maps went into effect, so if your home was built in 1991, for instance, don't worry about it,” Heidrick told us. "For those older, pre-FIRM (Flood Insurance Rate Map) homes, this reform bill is the best we're going to get.”

Chris, who last month accompanied a group of local legislators including Fort Myers Beach Mayor Alan Mandel, Sanibel Mayor Kevin Ruane and Lee County Commission Chairman Larry Kiker to Washington D.C to urge members of the House to pass the reforms, explained that all premiums affected by Biggert-Waters will gradually increase until FEMA is back on a sound level financially and the NFIP is getting the premiums it needs - this bill just makes those increases more palatable since they won't occur all at once.

"FEMA has stated that what they've been getting for premiums from these structures is about 40% of what it needs, so the plan now - assuming it's signed into law - is to gradually increase them until that shortfall is made up,” he said. "Six to eight years from now there won't be any subsidies left for ground level structures and FEMA will stop raising premiums as they all become adequate for their property class.”

Chris told us that FEMA has nine property classes, meaning policyholders fall into one of nine buckets.

"They have to make sure they they're getting enough money to cover all the policies in each bucket, but they are not so concerned with what each individual policyholder is being charged. It's much like if you and I both went online right now and booked tickets on the same flight at the same time - we will probably pay different amounts, but the airline will make enough overall to cover the cost of the flight.”

Heidrick went on to say that last year, primary homeowners whose homes were listed in the A Flood Zone saw their premiums increase by 16%, while those in the V flood zone saw theirs increase by 17%. "All commercial and second homes increased by 25%, and these increases will not change under the reform bill until all premiums reach the level where FEMA is sound,” he said. "What will change is the removal of the 'purchase trigger' - meaning anyone buying a home or property after 2012 won't immediately have to pay the high premiums. Now, someone who wants to buy a home will pay the same increase the previous homeowner did, and those who bought after 2012 are treated the same as those who bought before. Plus, FEMA is 'strongly encouraged' to keep premiums at less than 1% of the total coverage.”

Additionally, FEMA will now conduct an affordability study to see what mechanisms lower income and fixed income property owners can use to help them with the additional costs.

"As FEMA was looking across the country at ways to reform the NFIP, they saw that only one out of five structures with NFIP policies was built before these maps,” he said. "But that they didn't take into account is the fact that many of these structures are in clusters - Fort Myers Beach, for instance, was mostly built out by the 1970's. This reform just gives them more time.”

Chris told us that some problems that exist with the new bill lie in its nuances, what direction FEMA will give as far as implementing it and how long implementation will take.

"Homeowners who bought after Biggert-Waters, and were hit with the sudden hike, will get refunds for the increased amounts they paid, but that could take as long as a year or two as it will be anywhere between six to eighteen months for FEMA to give guidance on this and for it to be implemented,” he said. "We need guidance from FEMA for us to fully understand what this bill will do. When Biggert-Waters passed in 2012, no one was concerned about it until - nine months later - FEMA passed guidance that no one in my profession anticipated. So as far as a lot of the details, we're going to have to wait. Right now, we are still operating under the tenets of Biggert-Waters as that is the law.”

Fort Myers Beach Insurance Brokerage's Richard Karger agreed with Heidrick that insurers are still operating under Biggert-Waters, and said that it could take up to five months for FEMA to re-program their computers to reflect the reforms once President Obama signs the bill into law.

"It took them a year and a half to program them for Biggert-Waters, so we're being told it's going to be at least five months,” he said. "In the meantime, I'm suggesting folks look into private flood insurance - there are some really good options out there that most of the banks are accepting now. I just had a guy who bought a house after Biggert-Waters went into effect, the former homeowner was paying a premium of $3,800 a year and his new premium was $50,000! I was able to get him private insurance for $8,000.”

Keri Hendry Weeg