Mixed reviews on flood insurance reforms
Just when you think you’re out they pull you back in. No I don’t mean The Godfather - just our other old friend flood insurance.
Not too long ago I wrote about coming changes in the National Flood Insurance Program. I pointed out that federal officials’ attitude regarding the cost of this program which essentially subsidizes flood insurance for private citizens is changing and to expect modifications to the decades old program.
In July of last year the President signed into law the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012. This act reauthorizes and reforms the National Flood Insurance Program for five years though September 2017. The bill includes many program reforms some good and some not so good depending on how the property is utilized.
The good part which the National Association of Realtors has come out in favor of is the five year extension of the program. Prior to this the National Flood Insurance Program had been operating under stopgap extensions experiencing shut downs twice for several weeks. When flood insurance coverage is lapsed because the program is not extended, property sales that are contingent upon acquiring flood insurance cannot go forward possibly creating a domino effect of properties waiting for the one ahead of them to close. The NAR considers this a victory since it will bring certainty to half-a-million real estate transactions nationwide.
The new law also allows multifamily residential properties of five or more residences to purchase flood insurance and will now allow the escrow of flood insurance premiums by lenders. Also, individuals who pay their flood insurance premiums directly can now pay in installments rather than the current single annual payment.
However, there is a down side and like everything else it relates to money. The new law has reforms in premium rate structure. Specifically it phases out subsidies for second homes, business properties, severe repetitive loss properties or substantially improved/damaged properties. Rates for these properties will increase by 25 percent per year until premiums meet the full actuarial cost. New flood insurance policies must be based on actuarial rates and the annual cap on premium rates for all properties is being raised from 10 to 20 percent.
This law went into effect January 1st and is now just starting to be felt on Anna Maria with non-primary residences already getting premium increases and commercial properties starting in August. And typical of any new federal ruling the murky nature of the regulation has a lot of people confused and asking questions.
My question was how does this law affect waterfront condominium units that can have both full time and part time residents? So far there are conflicting answers to this question ranging from local government officials to building management companies with a lot of people in the insurance business not clear on all of the regulations. Unfortunately we may not know the answer until it’s time to renew the policies. FEMA is apparently holding the strings to this insurance puppet and hopefully they will provide clear guidelines going forward.
I knew it wouldn’t take long for me to be writing about insurance again I just thought it wouldn’t be this soon. It seems like Citizens Insurance and National Flood Insurance have become part of our everyday vocabulary on Anna Maria pulling us back in almost every day, sounds like a job for The Godfather.