Flood Insurance

Monthly flood insurance premiums for more than 1 million homeowners are set to increase this week due to a rewrite by the U.S. Congress last year of the federal flood insurance program. As a result, home prices in flood zones around the country are being affected as potential buyers balk at the cost of premiums. Flood insurance is required by lenders when they give a mortgage in a FEMA designated flood zone. So the option of not buying flood insurance is only there for cash buyers who are willing to risk a flood. Federal flood insurance covers $1.3 trillion of property in all 50 states, with Florida, Texas, Louisiana, California and New Jersey making up two-thirds of all policies, according to Federal Emergency Management Agency, FEMA which runs the program. Federal subsidies have kept rates as low as 10 percent of the actual cost, but now all that is changing. Under the law, those who bought homes after July 2012 became ineligible for subsidies after Oct. 1. The flood insurance program amassed more than $20 billion in debt after Hurricane Katrina slammed into New Orleans in 2005 and it borrowed more after superstorm Sandy hit the East Coast in 2012. Owners of vacation homes began to lose federal subsidies in January, with annual rate increases of 25 percent until reaching full price. After Oct. 1, subsidies for businesses and primary homes began being phased out. FEMA is reassessing its risk calculations, drawing new flood maps that will bring higher rates to some areas. Those who buy homes in flood zones or sign up for new policies won’t be eligible for subsidies. The new flood insurance law was designed to reduce the National Flood Insurance Program’s growing debt. The measure, called the Biggert-Waters Flood Insurance Reform Act of 2012, phases in rate increases for the 20 percent of policyholders who have been receiving federal subsidies on premiums. The new law was written by Maxine Waters, a California Democrat, and Judy Biggert, an Illinois Republican, (who lost her November re-election). Waters, said she never expected the bill she sponsored to cause large rate increases. Florida is home to 37 percent of the nation’s 5.6 million flood policies, and is now trying to attract private companies to write flood policies and are considering starting a state-based flood insurance pool, rather than the FEMA policies. Florida policyholders have paid $16 billion into the federal program over the last 35 years. Various measures have been offered to stop or delay the rate increases. Louisiana is preparing to sue. Massachusetts Attorney General Martha Coakley proposed legislation this month to cap the amount of insurance lenders can require. Bills pending in the U.S. House and Senate to delay rate increases have bipartisan support, mostly from lawmakers in coastal states. On the other side are those who advocate market-based policies, who have urged members of Congress to leave the measure in place. Would-be homebuyers up and down the barrier islands and within a few miles of the Gulf oif Mexico, are walking away from contracts when they see the insurance costs, and some Realtors are using the “fear of flood insurance” as a marketing tool for homes that don’t lie in flood zones advertising, “No flood insurance required!” Dane Hahn is a real estate professional with Venice-based Sarasota Realty Associates. He can be reached at dane.hahn@gmail.com or by phone at 941-681-0312. See him on the web at www.danesellsflorida.com