Filed Under:Markets, Regulation/Legislation

FEMA Briefings on NFIP Rate Increases Lead to Sticker Shock

Sticker shock in the extreme.

That would be understating the reaction members of Congress and their staffers exhibited as officials of the Federal Emergency Management Agency briefed them on the impact of the Biggert-Waters Act on flood insurance premiums.

The Sept. 4 briefing, and others held for homeowners in states such as Mississippi, Florida and Vermont, are generating strong reactions from both homeowners and legislators—although 405 members of the House voted for the legislation in June 2012.

For example, Sen. Mary Landrieu, D-La., and Rep. Cedric Richmond, D-La., who represents New Orleans, issued statements urging prompt congressional action to delay the rates after the briefing.

Congress returns to work next Monday.

State officials estimate that 49 percent of Louisiana properties that have flood insurance pay subsidized rates.

“It took FEMA far too long to make this critical information available to communities in Louisiana and across the nation trying to prepare for the steep rate increases that are scheduled to take effect on Oct. 1,” Landrieu said.

“While I am pleased that FEMA followed up on commitments made during their recent trip to Louisiana, I remain very concerned about the impacts these rate increases will have on homeowners and small businesses throughout the nation,” she said.

Landrieu pushed for the passage of her SMART NFIP Act, which would delay flood insurance premium increases and block a mandate to start phasing out subsidies on properties with rates that were grandfathered in when FEMA developed flood maps in 1974.

Richmond said the briefing was “disheartening.”  and “confirms what I, my colleagues, and Louisiana’s homeowners have feared for months.”

 “These new rates will indeed have a crippling impact on too many of Louisiana’s homeowners,” he said.

He urged passage of legislation delaying the rate hikes. “Louisianans and homeowners all across the nation desperately need us to address the crisis of flood insurance affordability,” Richmond said.

The law mandated changes to the flood insurance program designed to phase out subsidies that have kept rates low for insurance on older homes built before flood maps were redrawn to make them accurately reflect financial risk.

It required actuarial rates based on risk be phased in over four years for second homes, commercial properties and those that have suffered repeated flood losses effective next year.

It also increases the annual rate hikes most homeowners are charged from 10 to 20 percent a year.

FEMA officials say homeowners who purchased a home in a high-risk area after B-W was enacted in July 2012 in most case are paying the same flood insurance rate as the previous owners. However, according to a “fact sheet” FEMA officials provided at the briefing, homeowners will have to present an elevation certificate to their agents when they renew their policies.

In most cases, they will likely be required to pay much higher rates.

 The briefing marked the first time ever that FEMA’s congressional liaison staff briefed legislators and their staffs on the guidelines Write-Your-Own Companies will use starting Oct. 1 in computing premiums for flood insurance in new policies.

Susan Koshgarian, agency lobbyist, briefed the officials at a meeting held in the Dirksen Senate Office Building. The officials said that the documents are normally only provided to WYO companies” and other insurance partners. 

To explain the impact of the new law, FEMA officials said that a non-elevated, single family dwelling with two floors where the lowest floor is three feet below the “base flood elevation,” and where there is no basement would have a premium of $5,676 per year.

The BFE is the standard used in calculating whether a property is on a flood level that has one percent chance of being equaled or exceeded in any given year. The briefer said this would be the premium for a type of building in an AE zone with building coverage of $200,000, contents coverage of $100,000 and a standard $1,000 deductible would have a premium of $5,676 per year. 

In a recent briefing session in the Tampa area, FEMA officials, homeowners and Realtors painted a disturbing picture, according to reports by Bay News Channel 9 and the St. Petersburg Tribune.

One Realtor noted that an older home, like many in Treasure Island, with its lowest floor six-feet below base flood elevation has cost about $2,500 to insure through the federal government’s flood insurance program. That rate could leap to $15,000.

The articles cited the example of Eric Anderson, a Treasure Island homeowner who is trying to sell his home.

With its large stock of older homes, Pinellas County has the highest number of properties in the nation that could be affected by the law. Should new rate be implemented, local officials and Realtors warned they could have disastrous effects on the slowly recovering real estate market and trickle down to the area’s tourism industry.

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