If you’ve been paying subsidized flood insurance rates, prepare to be swept away by big rate hikes going into effect this month.
The Biggert-Waters Flood Insurance Reform Act of 2012 requires phasing out subsidized flood insurance rates on several types of properties in high-risk zones like Anna Maria Island.
Property owners who may not even know that they are paying artificially low, subsidized rates will be required to pay full risk rates immediately, which could mean triple digit percentage increases.
Those who will see the highest increases are owners of properties not covered by flood insurance as of July 6, 2012, when the act was passed; owners of properties purchased after July 6, 2012; and property owners whose flood insurance policies have lapsed, according to the Federal Emergency Management Agency (FEMA).
Other property owners will see their rates increase 25 percent a year until they reach the rates that accurately reflect their risk – owners of properties consisting of one to four residences that have sustained severe repetitive flood losses; commercial properties; and properties with flood claims that exceed the fair market value of the property.
Rates for subsidized non-primary residences (those that are not owner-occupied at least 80 percent of the year), such as vacation homes and vacation rentals, began increasing 25 percent annually on Jan. 1.
Policyholders who do not pay subsidized rates or who own primary residences also could have rate increases of 25 percent, but those increases will not necessarily be recurring.
Residential property owners without mortgages have the option to cancel their flood policies unless their homeowner or condominium associations require flood insurance, but FEMA requires those with mortgages to carry flood insurance if they are in a flood zone. The increases could hit condo owners twice – for their personal unit policies and their association policies, paid through association dues.
Flood program under water
The new law was designed to make FEMA’s National Flood Insurance Program financially stable after its funds were drained paying for losses from hurricanes that devastated Louisiana, New Jersey and other states.
But it may have the opposite effect, Bradenton Beach Building Official Steve Gilbert said.
Rising rates will make it more attractive to pay cash for properties and avoid mortgage bank requirements for flood insurance, funneling even less money to FEMA, he said.
Another probable consequence of the rate increases is that “old Florida” ground floor cottages and bungalows will be torn down and replaced with buildings higher than existing elevated buildings on the Island in anticipation of new flood maps expected soon, he said, adding that height restrictions on the Island may become an issue if the new maps require buildings to be built higher.
If Congress doesn’t act to stop the increases, families who have had homes on Anna Maria Island for generations may find themselves having to sell, fueling the trend of residents leaving the Island and making way for more wealthy vacation rental investors, Gilbert said.
The rising rates likely will change the demographics of the Island, Manatee County Commissioner and Island resident John Chappie agreed, expressing frustration at the federal government shutdown, which coincided with the rate increases.
Florida officials including Gov. Rick Scott and Sen. Bill Nelson, and even the co-sponsor of the law, California Rep. Maxine Waters, have demanded relief from Congress, but the federal government shutdown has hindered progress. A lawsuit also was filed last week in federal court by Mississippi’s insurance commissioner asking to delay the rate increases.
Both FEMA and Nelson’s office phones were answered by voice mail messages last week apologizing for being unstaffed due to furloughs.
Consumers should contact their insurance agents for information on how to lower premiums.
Changes in the wind
Changes in wind insurance coverage also loom large.
State-run Citizens Property Insurance, which provides wind insurance to Floridians who cannot purchase insurance in the open market, is set to notify policyholders by Tuesday, Nov. 5 whether their policies may be cancelled, according to spokesman Michael Peltier.
Policyholders will have 30 days to decide whether to buy insurance from a private company or remain with Citizens, he said, adding that Citizens has more than 17,000 policyholders on the Island.