Heads up America! As of April 1, flood insurance rates will be going up, a whopping overall average of 19.8 percent. While your first reaction is to blame “greedy insurance companies,” let me reassure you that this is not the case.
Here are the facts:
In the past, the federal government was subsidizing flood premiums keeping down your flood insurance premium costs. Today, with the tightening of the federal budget spending and the many floods causing a negative debt to the federal government, the National Flood Insurance Program (NFIP) under FEMA was changed to make flood risks more actuarially sound.
NFIP is in major debt, owing the government about $24 billion. Congress had required NFIP to come up with a plan in 2012 to pay off the debt, which was enacted through the National Flood Reform Act of 2012, aka the Biggert-Waters Flood Insurance Reform Act of 2012. The Biggert-Waters Act was designed to repair the loss of profitability of the debt-ridden NFIP.
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At first, National Flood tried to increase flood rates by as much as 25 percent a year and do away with the credits that are often offered to homeowners as a means of lowering premiums. But that plan backfired when flood policy premiums doubled and the real estate market plummeted. Legislators reversed their position on the Biggert-Waters Act and returned the higher premium differences to insured homeowners in an effort to stabilize the real estate market.
Because the NFIP debt was still rising, the Federal Legislators enacted the Homeowners Flood Insurance Affordability Act of 2014. This act not only added an average overall rate hike of 19.8 percent to property owners: It also added a $250 surcharge to businesses on every flood policy as well as a 15 percent reserve fee set up to offset costs when claims exceed the annual premiums collected. The reserve fee was originally 5 percent. So if you are a small restaurant owner, for example, you will not only have to pay a $250 surcharge on your policies, you will also have to pay the increased reserve fee. And you will have no choice but to pass those charges on to the consumer.
Property owners will start getting wind of this increase shortly as the new rates and surcharges begin to appear in the mailbox for April 2015 renewals. Realistically, if you have a mortgage from a bank on your property, whether it is commercial or residential, you are required to have flood insurance, unless your property is located in an X, B or C zone. So opting out is not an option, unless you pay off your mortgage with the lender.
But there are a few ways you can stem “the tide:”
Your flood insurance rate is applied to the insured value of your property per $100 of coverage. If the insurable property value of your home has decreased since your original appraisal, a reappraisal would be a worthwhile investment in reducing your flood premium.
You can try to opt for a higher deductible, which can reduce your monthly mortgage payments if your mortgage is an escrowed account where your lender pays your annual insurance and real estate taxes. Keep in mind that the ultimate decision will be made by your mortgage company.
Do you have an elevation certificate? If not, it’s time to get one, usually from a land surveying company. This process is well worth the investment. If your property’s lowest floor elevation is the same or higher than the base flood level of your home, then you should be able to save up to 50 percent annually.
Asking questions is an essential part of the agent/client relationship. When that notice arrives in your mailbox, call your agent and ask why. Then ask your agent for options.
Leigh Needelman is president and CEO of Florida Assurers Inc. in Miami Beach.
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