I’d guess that 80 percent of journalism is having to write about something you don’t know about.
Don’t ask me what the other 20 percent is, though.
It could be something as simple as you don’t know what’s going to come out of a meeting, or covering a religious event that you don’t celebrate or in this case, explaining to people what the hell was going on with skyrocketing flood insurance policies. Thankfully enough noise was made that forced the federal government to delay changes that were making people pay more for flood insurance than their mortgage.
I don’t own a home. And so I don’t pay for flood insurance. So, I have no idea how any of this works.
But I was told to tell people what happened in my community and what’s behind the Biggert-Waters Flood Insurance Reform Act. It must have resonated because a law office decided to cite one of my articles as a source in a Tampa Chamber of Commerce newsletter and InsuranceNewsNet picked up the story.
Part of the reporting was to convince the Washington Bureau that the flood insurance problems are not just a Florida problem, but a national issue. I also contributed to a McClatchy Washington Bureau story on the issue, too, when the bureau was able to follow the goings-on in D.C.
Manatee homeowners to get double whammy as flood insurance rates skyrocket
HOLMES BEACH — Pamela Lazaroff and her boyfriend Mike Martell have to grin and bear it when they look at their estimated flood insurance bill for their humble Holmes Beach abode.
Because of changes to the National Flood Insurance Program, the couple’s insurance bill will jump 614 percent, from $914 a year to $6,500 a year.
“We knew living on the island comes with added expenses,” Lazaroff said. “You know that taxes are higher, know insurance is higher. But what you don’t count on is $6,500 or more for flood insurance.”
Families and businesses across Florida and the nation didn’t count on any fallout from the Biggert-Waters Flood Insurance Reform Act created by Congress in 2012 until now — and it might be too late to do anything about it.
Sen. Bill Nelson, D-Fla., filed an amendment to a spending bill last week trying to delay the implementation of parts of the act for a year. He even received Republican Gov. Rick Scott’s support to create a moratorium. But his amendment is part of the bill, also under an Oct. 1 deadline, that Congress is battling over to avoid a government shutdown.
Much like the budget battle, the battle over flood insurance could have more far-reaching consequences than most realized.
Flood insurance rates threaten to change the very nature of the island communities as middle-class residents are forced to move out, and those who can afford bigger, elevated houses and condos take over the properties. And as Florida’s housing market is hit once again, this time with mandated flood insurance rates that middle-class families can’t afford, any economic recovery could plunge.
Middle-class folks like Lazaroff and Martell will be hit especially hard. The couple’s two-bedroom, 1,196-square-foot home was built in 1959, according to the Manatee County Property Appraiser. The couple bought the home for $218,000 in 2010, and were able to take advantage of the old rates until now.
They’re about to be hit with a double whammy.
The first strike will be the flood insurance rate hikes, phased in over five years because they owned their home before July 2012.
The second strike hits next year, when their flood base level will change from 10 feet to 14 feet in Manatee County’s new flood maps to be adopted by March 17, 2014. Even though their home sits on concrete blocks that put it above the current baseline flood elevation, that won’t be enough when the maps change.
“You’re taking out the middle class with disposable income, and having to put that into flood insurance? I’m scared about what it’s going to do to Florida’s economy,” she said.
That concerns officials like Manatee County Commissioner John Chappie, whose district will be hardest hit locally because it covers the island communities, Cortez, Sarasota Bay and homes along the Manatee River and Wares Creek.
The former Bradenton Beach mayor is powerless in this congressional fight. Not only will the middle class be hit hard, so will the retirees, he notes.
“We have a lot of people here on fixed income who can’t afford this, and it’s going to force people to do things they don’t want to do, which is possibly move out of their homes,” Chappie said. “We don’t want that to happen, and hopefully Sens. Nelson and (Marco) Rubio and all of them will show their support for our community and all of Florida.”
Grappling with change
Manatee has the 10th most-subsidized flood insurance policies in the state, according to Federal Emergency Management Agency data, with 11,264 homes in Manatee County that have a pre-Flood Insurance Rate Map home with a subsidized policy through the National Flood Insurance Program.
Subsidized policies are those that are not paying the full actuarial rate based on what is considered the true flood risk. Homes that typically have those policies were built in high-risk flood zones before the first flood insurance rate map went into effect in Dec. 31, 1974, and haven’t been substantially damaged, according to FEMA.
It’s not just residences on the beaches that are affected. The changes will affect homes in high-risk flood zones in northwest Bradenton, those near Wares Creek and Cedar Hammock and in low-lying areas in East Manatee. Businesses with subsidized premiums will also see a 25 percent annual increase until the rate is reached, affecting 10,964 businesses in the state.
Sue and John Johnson are Lazaroff’s neighbors on Avenue C, where their home, built in 1957, is one of the pre-flood map homes. They didn’t even know their flood insurance policy was part of the National Flood Insurance Program until they examined their renewal bill from May with the Herald.
Attached was a letter from Hartford Insurance Co., explaining that the Johnsons will be receiving more information about changes in the flood insurance program — but no mention that their rates are going to go up because of the federal flood insurance reform act. Instead, an educational packet from FEMA is attached that describes the changes, but doesn’t say how the Johnsons will be affected.
“We’re retired, and we’re on fixed income now, and what little we got, we don’t need pushed out the door if we can help it,” John Johnson said.
The couple has options, unlike others in this situation. The mortgage is paid off, and they never had to make a flood insurance claim, so they can risk not carrying flood insurance, the couple said. The worst flooding they experienced was during the “No Name Storm” of 1993, which brought water up close to their porch, but the home didn’t sustain any damage, John Johnson said. The retirees own two other homes, one in north Florida and another in North Carolina that they can go to if anything ever happens to their Holmes Beach residence.
“We got it covered for floods,” said Sue Johnson, laughing.
Realtors are scrambling to make sense of it all, too.
“I don’t think necessarily all the Realtors have a handle on that yet,” said Linda Formella, a Realtor with Keller Williams in Manatee County.
Florida Realtors, their statewide association, is keeping a close watch on the changes. President Dean Asher met with the governor’s cabinet last week to urge his office to lobby Congress to stop the law from taking effect any further. Seasonal homeowners saw the first of their rate increases starting this year in January.
“We believe the reforms will have a detrimental impact on the entire economy of Florida, including existing homeowners and those who want to buy Florida’s properties,” Asher told the governor’s cabinet, which includes Attorney General Pam Bondi, Chief Financial Officer Jeff Atwater and Commissioner of Agriculture Adam Putnam.
“Most sections of the bill relating to rate changes have what you and I would call a ‘glidepath’ or ‘phase in’ to actuarial soundness — similar to what we have done successfully here in Florida with Citizens Property Insurance Corporation,” Asher said. “Where there is not a glidepath specified in the flood reform act is for the new homebuyer.
“This reform measure will, in effect, lock current homeowners into their property,” he predicted. “Homeowners won’t be able to sell because no one will be able to afford to buy after they learn what the flood insurance premium will be.”
St. Petersburg Rep. Dwight Dudley is asking for a special session in the Florida Legislature to send a message to Congress to delay the implementation of the rates. Dudley points out that it’s not just beachfront properties that will be affected.
“This law impacts not only those residing in coastal communities, but also owners of older homes in low-lying areas,” Dudley said. “Bankrupting individuals and communities is unnecessary and counterproductive to our economic recovery and will have long-term dramatic impacts on the construction, insurance, banking and real estate markets, as well as the property tax revenues of state and local governments.”
Dudley thinks the act could be better implemented if spread out over a 10-year period instead of five years, and to cap increases at 10 percent instead of 20 percent.
Creativity out of chaos
Buyers and sellers are being creative trying to deal with the changes.
Some prospective homebuyers are already trying to protect themselves, putting a clause in their contract that allows extra time to investigate what flood insurance would cost, Formella said. Under contract terms, if the increase hits a certain percentage, the buyer would be able to back out.
John Laurie, agency executive for BB&T Insurance Services, has seen some Realtors discount homes 15 to 20 percent to help offset the flood insurance increase on the property. People buying homes after July 2012 were able to take advantage of the old rates, but on Oct. 1, they’re going to start paying the higher prices as soon as their policy is up for renewal. Homeowners who bought before July 2012 will see the rate hikes phased in over five years.
“They were able to close on a home transaction for, say, $1,880 for flood insurance, and at renewal they’re getting killed getting $8,000 bills,” Laurie said.
Redevelopment offers investment opportunities to side-step flood insurance, Laurie said. Extreme examples could include the option to raze homes on the islands or inland that don’t receive favorable rates because of the home’s construction and rebuild to meet criteria.
That option concerns Chappie, who is waiting to see how much his rates will increase.
“It could change the whole character, the look of the island communities, not to mention the mainland communities,” Chappie said. “It’s happening right now with newer construction being elevated, but it’s unfortunate that we could lose older structures that are on the ground.”
Some homeowners will be forced to sell and move off the island, he said, especially if their retirement nest egg is whittled away by the increases.
“People are going to be forced to make a decision — a life changing decision,” he said.
Cash buyers have upper hand
Cash buyers will again have an advantage in Florida’s coastal areas because if they avoid a mortgage, they won’t have to buy flood insurance.
Different scenarios will start to rise, Laurie said. A private investor might loan $250,000 to purchase the land to gain value while the buyer funds the construction. That would be permissible because lenders that aren’t federally approved aren’t required to have flood insurance, Laurie said.
“I think there’s some creativity that will start to happen,” he said.
Despite the financial barriers with flood insurance people will try to find ways to live on the waterfront.
“People always want to live near water,” Formella said. “It’s in our DNA to be near water, and people will always find a way to make that happen.”
Understanding the changes to flood insurance
By Charles Schelle, The Bradenton Herald | Sept. 29, 2013
MANATEE — The National Flood Insurance Program, now 45 years old, has gone through a rough decade that left it $24 billion in debt.
Damage to the flood insurance program has mounted as the federal program paid the clean-up costs from Hurricanes Katrina and Rita and Superstorm Sandy. Those costs prompted the Biggert-Waters Flood Insurance Reform Act of 2012, which is designed to make up for losses to the National Flood Insurance Program, created by
There are no rainy day funds to pay for the nation’s rainy day fund. And the losses have to be reversed.
And the Biggert-Waters act puts the costs of making up those funds squarely on Floridians’ shoulders.
Floridians carry the most flood insurance policies in the nation and contribute more money to the program than any other state. They are also about to see the highest increases in their premiums, set to take effect Oct. 1, 2013.
Those hikes are expected to take place as soon as Tuesday in a move the government calls “eliminating subsidies.” Anyone who gets a new flood insurance policy will have to pay what the government estimates is the real costs, based on risk. Some flood policies will actually be higher than home insurance policies.
How we got here
Florida has the most flood insurance policy-holders at more than 2 million, and since 1978 has the second most claims in the program at 240,374. It ranks fifth in total payments at $3.7 billion, behind Louisiana, New Jersey, New York and Texas, according to FEMA data. Manatee County has the 10th most subsidized policies in the state — based on estimated risk versus cost — with 11,264 policies, according to FEMA.
But it’s those very estimates and the structure of the program that has rankled Florida’s elected leaders.
Florida contributes 3.6 times more than it receives from the program, according to a study by the University of Pennsylvania Wharton Center for Risk Management and Decision Processes.
The study, which looked at claims from 1978 to 2008, and accounts for inflation, found that Floridians paid $16.1 billionin premiums and received $4.5 billion in claim payments. Colorado had the highest ratio of policy-holders paying into the program while receiving the least amount of claim reimbursements, according to FEMA. But that was before the recent devastating floods there.
In Manatee County, the flood insurance program paid out $27.1 million in claims from Jan. 1, 1978 to July 31, 2013, for 3,084 losses, according to FEMA data. More than 1,200 claims didn’t receive payment, according to FEMA.
In the grand scheme of housing in Manatee County, that might not seem like much given Manatee County’s172,690 homes. But as David Thompson, education instructor for the Florida Association of Insurance Agents, puts it, the situations are very much personal.
“It’ll be a select group of people who experience sticker shock, but it doesn’t matter how small if you’re the one,” Thompson said during a recent training seminar to help educate insurance agents around the state about the impending changes.
It’s not just Floridians who are trying to stop the increases, either. The Mississippi Department of Insurancefiled a lawsuit Thursday against the federal government to try to block rates from increasing Tuesday.
Some in Congress are also trying to delay the implementation, but as Washington leaders are debating a government shutdown, there doesn’t appear to be time to have President Barack Obama sign a bill for a moratorium.
Earlier this year, the House of Representatives passed a homeland security spending bill that included language to delay some of the increases, but the Senate can’t agree on parts of that homeland security bill. As a way around that, Sen. Bill Nelson on Wednesday filed to amend House Journal Resolution 59 to enact a one-year moratorium on the flood insurance reform.
Here’s the problem with that: H.J. 59 is the spending bill to keep the government at sequestration levels, and has been muddled with other issues, including attempting to defund the Affordable Care Act, also known as ObamaCare. The House would also have to pass that bill, which is also under an Oct. 1 deadline to avoid a government shutdown.
Who sees the sticker shock?
Homes in a Special Flood Hazard Area will see the greatest increases. This is considered a high-risk zone for 100-year floods, and includes zones A, V and D. The low- to moderate-risk zones, or 500-year flood Zones B, C and X, will see smaller increases.
Pre-Flood Insurance Rate Map homes in the V and A zones will see the largest increases at 17 percent and 16 percent annually over the next five years. Those who purchased a preferred risk plan because their property was mapped in a high-risk flood zone after Oct. 1, 2008, could get an extension, but those rates will increase 20 percent annually, and that plan could be eliminated soon, too.
Next year, Manatee County’s flood insurance rate map will go into effect as mandated by FEMA, and those changes prompt a five-year phased increase at a cap of 20 percent each year for all homes in the Special Flood Hazard Areas.
Those who don’t have a subsidized plan could still see increases. The rates of 28,763 policy-holders in Manatee County could increase next year, too, depending on the location of the property in new flood insurance rate maps the county is expected to adopt by March 17. Each Manatee County municipality and unincorporated Manatee have flood maps for which rates are based, and many are from the 1980s and early 1990s.
Save money while you can
Finding discounts on rates will be more difficult, and some discounts will be going away soon.
One way to save money is by taking advantage of the Grandfather Rule, Thompson said. However, grandfathering could also be phased out, and Thompson encourages people to “ride the wave of grandfathering while it lasts.”
Grandfathering is when a homeowner buys a new policy before the new flood maps kick in, or has proof that the home was built to comply with the flood map in use at the time of construction, according to the National Flood Insurance Program’s website, FloodSmart.gov.
But grandfathering can’t be passed on if the home is sold, Thompson said. They’ll pay the full rates from the first day they own the home, and will have to get an elevation certificate.
The grandfathered rates will be phased out, but FEMA hasn’t given direction on how that will be implemented.
“Does that mean just people who bought policies after 2012, or all the people we sold polices to over the last 20, 30 years are not subjected to the discounted rate?” said John Laurie, agency executive for BB&T Insurance Services in Bradenton. “That’s the confusion that’s out there for us.”
Homeowners have some protection if their home is going into a 100-year flood zone and if the natural grade is above the base flood elevation, said Sandy Tudor, floodplain investigator for Manatee County. Policyholders can submit a Letter of Map Change to be exempt, and if fill was used, there would be a charge, but not as high as a full increase, Tudor said.
But entire neighborhoods can’t apply for the exemption, she said.
Key changes in the county’s flood map are in the eastern Buffalo Canal area, low-lying areas near ponds in East Manatee, wetlands and more inclusion of the Wares and Cedar Hammock creek neighborhoods, Tudor said.
Still, about 20 to 25 percent of all flood insurance claims are in low- to moderate-risk zones, according to FEMA. Because of that likelihood, Laurie recommends that people not in high-risk zones buy a preferred risk plan before it’s phased out to take advantage of a lower rate. Plans could start out at $129 for homeowners and $30 for renters.
It’s also a tool for homes placed in high-risk zones that haven’t had any previous claims. That preferred risk plan allows policy-holders to renew for two years after the new flood maps take effect, and on the third renewal, rates for moderate- to low-risk zones will be applied instead of high-risk zones rates, according to FloodSmart.gov.
Thompson is encouraging Pre-Flood Insurance Rate Map homeowners to find a surveyor now for an elevation certificate to help provide some relief on rates. The certificate verifies the lowest floor elevation compared to the ground, to assure that the contents of the home have a lower damage risk because they are above the baseline flood elevation.
Elevation certificates are also required in new, lapsed and assigned policies, Thompson said, and already required for homes built since the Flood Insurance Rate Map went into effect. Policies purchased before July 6, 2012, do not require an elevation certificate if the policy does not lapse or isn’t assigned.
The demand for these surveyors is already being seen locally. Laurie said there is a backlog of requests for the surveyors, and in some cases folks are being quoted prices from $700 to $800 — nearly double the standard price. Prices are going up, but surveyors should cost somewhere between $300 and $500 for elevation certificates, he said.
In some cases, obtaining a certificate isn’t as easy as calling the surveyor to get a piece of paper.
“We get situations where people don’t think about how they might have a slab or floor above elevation, but they might have a hot water heater in the garage or A/C unit outside,” Laurie said. “They’re required to go to the lowest level where equipment is.”
Spending a couple hundred dollars to change the location of a water heater or AC unit could save a few thousand dollars on flood insurance, he said.
What else is affected?
Primary, single-family homes and duplexes aren’t alone in the increases.
Vacation homes are already seeing increases. As of Jan. 1, a non-primary dwelling, pre-Flood Insurance Rate Map home were hit with a 25 percent increase. These homes are typically for snowbirds, and are not occupied for at least 292 days of the year by the named insured or their spouse. Florida has 36,807 of these homes affected by this measure, Thompson said.
Businesses with subsidized premiums will also see a 25 percent annual increase until the rate is reached, affecting 10,964 businesses in the state, Thompson said. Those businesses seeing the highest increases would have a pre-Flood Insurance Rate Map building in a Special Flood Hazard Area or Zone D.
But wait, there’s more in 2014
More changes are expected to come in 2014 and beyond, but FEMA has yet to give direction on how the law will be implemented, Thompson said. Grandfathering, as previously mentioned, is one area that is anticipated to be phased out, but how that happens remains to be seen.
New deductible limits are expected to take effect after 2014, too. For pre-Flood Insurance Rate Map properties, if coverage is $100,000 or less, it’s $1,500; for more than $100,000, it’s a $2,000 deductible.
For post-Flood Insurance Rate Map properties, it’s $1,000 for coverage of $100,000 and less, and $1,250 if coverage is greater than $100,000.
Lenders will be heavily scrutinized, too. If mortgage companies are late by one day paying flood insurance policies, it will prompt rate increases. If lenders don’t have the proper flood insurance on the homes they are financing, the penalty increases from $350 per loan per day to $2,000 per loan per day with no annual cap, Thompson said. Lenders will then have more calls coming into insurance agencies to verify coverage, he said.
An installment payment option to allow homeowners to place a down payment on the policy to help ease monthly payments will be implemented after 2014, Thompson said.
Apartment buildings and cooperatives will be able to buy $500,000 total of building coverage, but Residential Condominium Building Association Policy is limited to $250,000 multiplied by the number of units.
Congressman Vern Buchanan files bipartisan bill to delay flood insurance hikes
WASHINGTON — Rep. Vern Buchanan, R-Sarasota, filed legislation Wednesday aimed at delaying the effects of potentially astronomical flood insurance increases.
The House bill, dubbed the Flood Insurance Relief and Transparency Act of 2013, aims to delay rate increases until March 1, 2015, and ensures an affordability study is completed by the Federal Emergency Management Agency by Oct. 1.
The bill is designed to benefit policyholders affected by section 207 of the Biggert-Waters Flood Insurance Reform Act of 2012, which triggered large increases last Oct. 1 for most flood insurance policyholders. Congress sought to eliminate subsidies in the National Flood Insurance Program as it faced $24 billion in debt after paying for hurricanes Katrina and Rita and Superstorm Sandy.
“Hundreds of thousands of Floridians are experiencing untenable rate increases that threaten to wash away property values and push people out of their homes,” said Buchanan, who co-chairs Florida’s congressional delegation with Rep. Alcee Hastings, D-Fort Lauderdale. “This bill is an important first step toward combating these rate hikes while invalidating FEMA’s excuse for failing to conduct an affordability study.”
If the bill is passed, primary homeowners would benefit from the rate delay affecting about 1.4 million Floridians, according to the bill, while vacation homeowners would continue to pay the new rates.
The bill is being fast-tracked. It is also sponsored by Rep. Bill Cassidy, a Republican from Louisiana, and Hastings. Buchanan hosted a public forum Tuesday at New College of Florida to answer questions from residents about the pending increases. He promptly left on plane for Washington, D.C., where he spent time with lawmakers to pick up co-sponsors, and is continuing to find more support for the bill.
The bill, considered a suspension bill, would require two-thirds vote by the House to pass. Congress has attempted to delay the rates before through amendments to other bills, but those efforts failed.
In the Senate Wednesday, Sen. Bill Nelson, D-Fla., and a bipartisan group of lawmakers tried to fast-track a bill to address the soaring rate hikes, but the move was rejected, according to several Washington reports.
“This is no-fooling time,” Nelson said. “I beg the Senate to let this legislation go by unanimous consent.”
But Sen. Pat Roberts, R-Kan., objected, saying the bill had still not cleared the Banking Committee.
A string of lawmakers, from a range of states, appeared on the floor to call attention to the issue — and to send a signal to angry constituents they are working on it.
“We are down to the wire here,” Sen. Mary Landrieu, D-La., said.
The Senate bill, like Buchanan’s bill, is intended to roll back any rate increases until FEMA completes an affordability study.
After his bill was blocked, however, Nelson learned that Buchanan had just introduced the House bill. Nelson issued a statement that it might give the Senate another chance to take up the issue next week.
The latest round of increases took effect Oct. 1, in some instances raising policies by thousands of dollars for homes in special flood hazard areas. The latest rate increases when policies renew cause homes built below base flood-line elevation, and before Dec. 31, 1974, when the first flood maps were made, to experience the greatest increases. The Bradenton Herald has documented homeowner increases of up to 600 percent in the Bradenton area.
The highest increases locally are in Cortez, Anna Maria, northwest Bradenton and along Manatee River and Ware’s Creek.
John van Zandt with Island Real Estate of Anna Maria Island said he fears the effects of the rate increases on the local housing market, especially for homes built before the first flood insurance rate maps in 1974, also called pre-FIRM.
“Owners of pre-FIRM properties are afraid their rates are going to go to such a point that they can no longer afford to stay. Typically, those are older people on fixed incomes,” van Zandt said. “If over a period of time their rates go up 20 percent a year to whatever the actuarial rate is, they may be driven from their homes.”
Monthly payment plans might help some policyholders. Biggert-Waters has a provision to allow monthly payment plans instead of paying off the policy in one lump sum. But FEMA has not issued guidance on how that would be structured, said David Thompson, training educator for the Florida Association of Insurance Agents.
In Buchanan’s bill, the payment system is further defined. The bill would cap the first payment at no less than 1/12 of the annual premium as the down payment, then 11 equal remaining monthly payments. It allows for automatic withdrawals and contains provisions for missed payments.
Florida has the most flood insurance policyholders at more than 2 million, and since 1978 has the second-most claims in the program at 240,374. It ranks fifth in total payments at $3.7 billion, behind Louisiana, New Jersey, New York and Texas, according to FEMA. Manatee County has the 10th-most subsidized policies in the state — based on estimated risk versus cost — with 11,264 policies, according to FEMA.
In Manatee County, the flood insurance program paid out $27.1 million in claims from Jan. 1, 1978, through July 31 for 3,084 losses, according to FEMA. More than 1,200 claims were rejected, according to FEMA.
Homeowners wouldn’t be absolved of all increases. Regular annual rate increases are still allowed, and Manatee County rates could change for some homeowners as new flood rate maps take effect March 17.
Charles Schelle, business reporter, can be reached at 941-745-7095. Follow him on Twitter @ImYourChuck.
Flood insurance rate delays opposed
WASHINGTON — A coalition of Washington lobbyists and think tanks is pushing Congress to defeat a bill that would delay dramatic increases for National Flood Insurance Program rates.
Smarter Safer, a group of insurance and environmental groups formerly called Americans for Smart Natural Catastrophe Policy, instead is lobbying for a targeted income-based reform of the Biggert-Waters Act to lessen the burden on taxpayers.
The Homeowner Flood Insurance Affordability Act of 2013, the most recent bill attempting to delay the latest flood insurance increases from the Biggert-Waters Act, is expected to be voted on next week in the Senate. If it passes, it would delay rate hikes for four years, after the Biggert-Waters Act expires in 2017.
Citing a Congressional Budget Office report released Tuesday, the coalition pointed out that if the Senate bill is approved as written, the $2.1 billion loss to the flood insurance program over the next 10 years will cause Congress to bump up against the borrowing cap, potentially creating problems paying out claims. Overall, the National Flood Insurance Program has a $28 billion loss so far.
Senate Bill 1846 is backed by Republican Sens. Robert Menendez of New Jersey and Johnny Isakson of Georgia, and has also found support from Sen. Bill Nelson, D-Fla.
“Basically this bill will make the flood insurance program operate on a hand-to-mouth basis as far as paying claims,” said Steve Ellis, vice president of Taxpayers for Common Sense, during a conference call Wednesday. “It’s not responsible. There are responsible ways.”
But Floridians and Manatee County residents affected by the increased rates feel like they’ll be the ones living hand-to-mouth if the sudden hikes aren’t eased. Florida has the most flood insurance policyholders in the country, at more than 2 million, and Manatee County has the 10th-most subsidized policies statewide at an estimated 11,264.
Homes on Anna Maria Island and along the coast are seeing increases as much as 600 percent, while some Florida homes are seeing increases beyond 1,000 percent.
The latest round of increases took effect Oct. 1, in some instances raising prices on policies by thousands of dollars for homes in special flood hazard areas. When policies renew, homes built below base flood-line elevation, and before Dec. 31, 1974, when the first flood maps were made, will get hit with the greatest rate increases. New Manatee flood maps that go into effect March 17 will also increase some rates.
R.J. Lehmann, a senior fellow at free markets think tank R Street Institute, said the proposed legislation to delay insurance increases would subsidize wealthy homeowners at the expense of all taxpayers. Homes in the wealthiest counties in the program are 3.5 times more likely to file claims, and received $1 billion more than those in the poorest counties, according to the Institute of Policy and Integrity.
Instead, an income-based or means-tested solution should be created to help homeowners who truly need subsidized rates, Lehmann said.
“We support making targeted changes to the program with the reforms that would allow people of legitimate concerns to afford their flood insurance, so no one is thrown out of their homes because they can’t afford their flood insurance,” Lehmann said. “We don’t think a blanket delay is the answer.”
What the coalition is suggesting is really nothing new, said Max Goodman, spokesman for Rep. Vern Buchanan, R-Sarasota. The Biggert-Waters Act’s affordability study was supposed to provide a way to slow the financial impact to policyholders, but it has yet to be delivered, he said. Smarter Safer is also pushing for the Biggert-Waters Act’s affordability study to be completed.
“We’re open to any reasonable solution,” Goodman said.
Buchanan is a sponsor of the House version of the bill, the Grimm-Waters-Richmond Homeowner Flood Insurance Flood Affordability Act, as well as another bill called the Flood Insurance Relief and Transparency Act.
Buchanan is also expected to lead a closed-door meeting with the Florida congressional delegation Thursday morning to discuss strategies to fix the flood insurance program.
Nelson, a supporter of the Senate bill, said at a Tuesday press conference that fixing flood insurance is important to Florida.
“I wanted to stand here because I want to show you that there are 40 percent of all policies, flood policies, in the state of Florida. So are we affected? You better believe it. And folks like Mrs. Ross, the head of the Chamber of Commerce right down here in Bonita Springs near Naples, is feeling it,” Nelson said pointing to a flood map of the United States.
“Or talk to David Clapp, a Realtor in Sarasota. His real estate market has dried up. Why?” Nelson asked. “He actually put together a deal. The premiums were $1,600 and now they’re $6,000 — he kept that deal. But what about the deal up here in Pinellas County? They were $4,400, they’re now $44,000.
“So you see the impossibility of being able to conduct business particularly when people need to sell their homes and people need to buy homes.”
Lehmann doesn’t buy arguments about the effect on real estate.
“The consensus from the Florida Association of Realtors is that home sales will climb another 10 percent this year, and appraised values will rise 5 percent and median sale prices will rise 12 percent,” Lehmann said, looking at statewide data instead of coastal real estate data. “The sort of hand-wringing of the impact of changes on the real estate markets doesn’t seem to be borne out of the data.”
Much of the push in Washington to suddenly delay the increases is posturing for an election year, contends Jimi Grande, a senior vice president of federal and political affairs for the National Association of Insurance Companies.
“We as an industry work very hard for a long time to get the Biggert-Waters legislation passed,” he said. “Right now, I think what we’re seeing is the worst that Washington, D.C., has to offer, which is allowing short-sighted local politics to trump sound long-term policy that is best for America, best for taxpayers and best for people who own homes that are at risk and need flood insurance.”
Grande and Ellis laud Florida’s junior senator, Marco Rubio, who hasn’t publicly proposed any changes yet, for what they consider a quiet approach to flood insurance reform.
“We visit with his office on a regular basis and talk about flood insurance,” said Grande, who considers Rubio an ally. “I can say that I know he is deeply interested in the NFIP, how it works and that it becomes a more like an insurance program and that is a sustainable program.”
Rubio is “holding firm and thinking about responsible solutions that could actually benefit policyholders and the taxpayer,” Ellis said.
“When this came out, he said he wanted to have a responsible solution,” Ellis said. “He clearly is trying to be thoughtful about this and not do a knee-jerk response — which a four-year delay — that really doesn’t accomplish anything except for delaying the rate increases.”
Competition for cheaper flood insurance heating up in Florida
MANATEE — Florida homeowners are starting to find cheaper flood insurance rates from private insurers, allowing them to avoid astronomical increases levied by the National Flood Insurance Program.
Lloyd’s of London, a private insurance market program, is reducing rates, offering homeowners an option to avoid hefty insurance bills. At the same time Florida lawmakers are paving the way to create a regulated industry for private flood insurance.
John Laurie, senior vice president and agency executive for BB&T Insurance Services in Bradenton, said Lloyd’s is able to offer the lower rates because it spreads out the risk.
“They have expanded into more states. Lloyd’s is in about 19 states writing private flood insurance, getting an uptake in acceptance of private flood insurance,” said Laurie, whose agency offers the Lloyd’s policies. “They used to be just in Florida.”
For $144,000 worth of coverage plus $25,000 for contents, a home on Siesta Key built before 1960 below flood elevation was quoted at $7,611 for the new NFIP rate; $1,455 if the homeowner takes a grandfathered rate, according to BB&T Insurance. With Lloyd’s, it’s $1,284 per year.
While President Barack Obama signed the Homeowner Flood Insurance Affordability Act into law in March, the federal rates are months away from being rolled back.
Cheaper rates for primary homeowners won’t be granted for another eight months as the federal agency works through the changes, Laurie said, because FEMA has not calculated the new rates. The law also gives insurance companies another eight months to implement the new rates.
That would push refunds for affected policyholders about a year away, he added, leading impatient homeowners to look elsewhere for savings.
Lloyd’s and private flood insurance might not be for everyone despite the more affordable costs. In some
cases, consumers still might not have the choice.
Lloyd’s will not write polices for condominiums, properties with repetitive losses of more than $250,000, mobile homes and properties that had unrepaired flood damage.
Also, Lloyd’s is more like a stock exchange than an actual private insurer, said R.J. Lehmann, senior fellow at the R Street Institute in Washington, a nonprofit think tank that supports free markets.
“The more competitive the market, obviously the better it will be for consumers to buy private flood insurance,” Lehmann said. The advantage with Lloyd’s is that it has the wherewithal to guarantee its obligations, he said.
The competitive rates would be better for the secondary homeowners, Lehmann said, as those homeowners immediately pay the higher rates and will not see a rollback.
Also, not all lenders will let homeowners switch to either Lloyd’s or a private carrier because of mortgage compliance requirements, Laurie said.
“It specifies that any properties they write a mortgage for in a federally designated flood zone, it has to be insured by NFIP,” Laurie said.
Other mortgages that have flexibility might state they don’t want to deal with policies that underwrites on a capital level. Lloyd’s has an A level, 15-rated policy, which is a top-rated policy that carries the largest amount of capital to back up the policies, Laurie said, providing an advantage to private insurers that might not have the wherewithal and rating to support the risk.
Not all homeowners will see an advantage with Lloyd’s or private insurers. Another Siesta Key home for $250,000 in coverage built in 2007, meeting flood requirements in Zone A, would pay $632 a year through the national program while Lloyd’s would charge $2,632, according to BBT.
“We caution about the risks of switching out of a federal program,” Laurie said. “If you lose the grandfathering and forfeit that, the lender may not accept a private alternative.”
While Lloyd’s is trying to take advantage of high rates now, a regulated private flood insurance bill passed the Florida House of Representatives on a third reading Monday. House Bill 542 creates regulatory language for private flood insurance underwriters while preventing Citizens Property Insurance Corp., from writing flood insurance. The bill also received Senate approval in March, and now awaits the governor’s signature.
A small market already existed for private flood insurance because the federal program capped coverage at $250,000 for a single family home, Lehmann said.
“I think you’re starting to see some primary insurers see this as an optional coverage and start in the high-end market and gradually move down a bit,” Lehmann said. “Your State Farms, Nationwides and Allstates are not going to jump into this. It’s the smaller companies that are interested, and interested in doing something that sets them apart.”
The concern with the private insurance industry start-ups in Florida is that many of the companies would likely only be in Florida, concentrating its risk here and not in other states or areas that have a lower flood risk to balance out the policies, Lehmann said.
“What a regulator has to look at is if they have appropriate diversification,” Lehmann said. The insurer could decided to write policies in different states, write different types of insurance or buy reinsurance to help break up the risk, he said.
Reselling parts of the policy would likely become commonplace.
“They’re only keeping a small portion of the risk,” Lehmann said. “They’ll keep 5 or 10 percent on their books.”
Lawmakers hope to delay flood insurance-rate hike they triggered
Republican and Democratic members of the House of Representatives and the Senate unveiled a bill Tuesday, the anniversary of Superstorm Sandy, that would delay the flood insurance rate increases that are starting to go into effect under a law passed last year.
The law phases out some federal subsidies for flood insurance. The intent was to stop the flow of taxpayer dollars into the National Flood Insurance Program, which is about $25 billion in debt. Supporters of the delay said millions of property owners faced much higher flood insurance rates.
“Forty percent of flood policies are in my state, and it has dried up the real estate market,” Sen. Bill Nelson, D-Fla., said at a news conference at which he and more than a dozen other senators and House members announced the bill aimed at postponing the increases, which began Oct. 1.
The legislation would require the Federal Emergency Management Agency to conduct an affordability study and give Congress time to review it. FEMA, which manages the flood program, would have to show that it had developed a flood-risk assessment program that Congress could accept. The time frame would effectively put off the rate hikes for four years.
Some lawmakers noted that more than a dozen members of Congress from coastal and inland states – liberals and conservatives – supported the delay, an unusual show of unity across party and geography. The real estate and home-building trade groups also favor the delay. Still, it was too early to say what the bill’s prospects are.
Nelson said the measure would be retroactive if it became law. Even so, “a lot of folks have lost a lot of sales,” he said.
In some cases, a homebuyer will face higher flood insurance rates than the previous owner paid. The higher insurance costs result in lower property values.
Pam Lazaroff of Holmes Beach, Fla., said she was relieved to hear that Congress might delay the flood insurance increases. Lazaroff and her boyfriend, Mike Martell, said in September that their 1959 two-bedroom home’s flood insurance would jump from $914 a year to $6,500.
“If, after a meaningful financial review of the program and its insured properties, increases may be warranted, then let’s proceed in a manner that will not put Florida back on top of the foreclosure list,” she said Tuesday.
“I didn’t buy the oldest or the smallest house in Holmes Beach, Fla., but close to it,” Lazaroff wrote in letters to members of Florida’s congressional delegation. “And I work hard to be able to own and maintain my piece of paradise.”
Opponents of the delay said it would gut a law intended to save the federal flood insurance program from insolvency and that artificially low rates allowed for risky development in coastal areas.
Supporters, however, spoke of the problems of people who wouldn’t be able to afford the higher rates.
“It’s a timeout to do an affordability study,” Sen. Johnny Isakson of Georgia, the leading Republican sponsor of the bill, said at the news conference. He said the delay would stop the unintended consequences of the 2012 law and allow time to find a way to phase in its intent of making the flood insurance program sustainable.
“We have priced middle-class people and retirees out of the market,” said Sen. Mary Landrieu, D-La.
If the delay became law, it would apply to all property owners, regardless of income.
Steve Ellis, the vice president of Taxpayers for Common Sense, a nonprofit, nonpartisan budget-watchdog group, said the bill was “essentially a backdoor tactic not to do anything.”
The flood insurance program took in $3.6 billion in premiums last year, but its debt grew to $25 billion. There are about 5.5 million flood insurance policies, and about 130 million housing units in the United States, Ellis said.
“We’re talking about a small percentage of the country getting a significant subsidy from the rest of us,” he said.
A better approach, he argued, would be to make provisions to help people with modest incomes who’d be hard-hit, while letting subsidies for others phase out.Rachel Cleetus, a senior climate economist at the Union of Concerned Scientists, a nonprofit science advocacy group, said in a blog post that artificially low rates didn’t convey the real risk of storm surges and flooding.
Lawmakers can overturn rate increases, she wrote, but “they cannot turn back the clock on sea level rise.”
Reps. Walter Jones, R-N.C., and Maxine Waters, D-Calif., were among the House members at the news conference who support the delay.
Waters was a co-sponsor of the law that phased out the subsidies. She blamed FEMA for failing to make sure its risk maps were accurate and for not conducting a required affordability study before raising rates. She said the shock to middle-class homeowners could have been avoided.
FEMA Administrator Craig Fugate said in testimony to Congress last month that the 2012 law gave little leeway for helping people keep their homes when the rates became unaffordable. He said FEMA needed two years to complete the study.
Jones said Tuesday in a statement that changes to the flood insurance program were necessary but shouldn’t be done in ways that would cause homeowners in his district in eastern North Carolina and elsewhere to “face sudden exorbitant rate increases.” He said the delay would “allow time for adjustments to be made to ensure that the program remains financially sustainable and that flood insurance rates remain affordable.”
The Government Accountability Office, the investigative arm of Congress, said in a report earlier this year that the National Flood Insurance Program wasn’t likely to generate enough money to repay the billions of dollars it had borrowed from the federal government to cover claims.
After Hurricane Sandy, Congress passed legislation to allow the program to increase its borrowing to more than $30 billion.
Manatee County, Fla., commissioner John Chappie said delaying the rate hike would be a good start. His district covers the county’s island communities, Sarasota Bay and Cortez, Florida’s oldest working fishing village.
“I don’t think they really think these things through because it’s apparent here,” he said.
Florida has the most flood insurance policy holders, at more than 2 million, and since 1978 has the second most claims in the program, at 240,374. It ranks fifth in total payments, at $3.7 billion, behind Louisiana, New Jersey, New York and Texas, according to FEMA data.
(CHARLES SCHELLE OF THE BRADENTON HERALD CONTRIBUTED TO THIS ARTICLE.)