Grandfathering changes expected in 2014
Starting in 2014, the Biggert-Waters Flood Insurance Reform Act of 2012 will phase out grandfathering practices for changes to Flood Insurance Rate Maps.
Currently, some policyholders can keep their old flood insurance rates if changes to the Flood Insurance Rate Maps impact them negatively.
According to a Federal Emergency Management Agency fact sheet, this practice will be phased out gradually.
Some Southwest Florida property owners are going to see drastic increases in their flood insurance rates.
A law passed by Congress in 2012 is working to phase out many of the nation’s subsidized flood insurance policies — which in Southwest Florida tend to be older houses in flood-prone, coastal areas like Sanibel Island and Fort Myers Beach. The law’s goal, in part, is to make the National Flood Insurance Program financially stable and to have subsidized properties reflect their true flood risk.
However, this law is especially troublesome for Southwest Florida residents who bought subsidized flood insurance policies after the law went into effect July 6. These policyholders will incur the full rate increase at once on Oct. 1 when policies need to be renewed — despite many having purchased these policies before the Federal Emergency Management Agency began to understand the law’s impact.
And as of Dec. 31, Lee County had 30,631 flood insurance policies affected by the 2012 legislation. Collier County had 17,224, according to a FEMA spreadsheet.
“I think it’s really hard for somebody to argue that subsidized rates should be allowed … but the implementation of this is shocking,” said Chris Heidrick, owner of Heidrick & Co. Insurance on Sanibel Island.
According to a fact sheet from FEMA, the law known as Biggert-Waters Flood Insurance Reform Act of 2012will affect subsidized policies first. Subsidized policies are on properties built before Flood Insurance Rate Maps were put in place, and different communities adopted these maps at different times. Sanibel, for example, adopted the maps in 1979 while Fort Myers Beach adopted them in 1984 while part of unincorporated Lee County.
About 20 percent of flood policies nationwide receive subsidies. The immediate impact of the law is on vacation homes in areas defined by FEMA as having at least a 1 percent chance of flooding in any given year. These properties began seeing 25 percent annual increases on renewals following Jan. 1. Likewise, properties with repeated or severe flooding and businesses located in flood zones will see annual 25 percent increases on renewals following Oct. 1. These increases will continue until rates are high enough to cover the property’s risk.
Primary residences won’t be hit as hard. These policyholders will continue to receive subsidized rates unless or until: the property is sold, the policy lapses, the property suffers severe or repeated flood loss, or a new policy is purchased. These policyholders may still see rate increases.
“Particularly for Southwest Florida, the National Flood Insurance Program has been a fundamental factor on which our economy has relied,” Heidrick said. “As Congress looks for ways to end subsidies in this program, they need to take into account how these changes impact specific individuals and specific communities.”
On May 21, U.S. Sen. Mary Landrieu, D-La., introduced legislation to delay premium increases and amend other aspects of the flood insurance reform. There are additional pieces of legislation to amend the law, but Heidrick said the Biggert-Waters reform is current law.
“We need to be treating it that way — that it’s law today,” Heidrick said.
Elizabeth Piersol, 45, and Josef Reum, 56, live in Washington, D.C., but have a vacation cottage on Sanibel. It’s their secondary residence, so Piersol and Reum have seen a 25 percent increase from $1,324 to $1,655 on their flood insurance.
And Heidrick, their insurance agent, estimated their flood insurance could eventually cost between $8,000 and $15,000 a year.
“When I look at the possibility of flood insurance being more than our mortgage, it’s sobering,” Reum said.
They bought a ground-level home, partly, because Reum is an amputee. He is healthy now, but they were looking further out toward retirement.
And they said the overall community is in shock because nobody understood the scope or dollar amount when the reform was passed.
“That’s part of what makes it so very alarming,” Piersol said.
Heidrick predicted flood insurance for affected properties in Southwest Florida to be as high as $10,000 – or more.
In fall 2011, Florida had nearly 40 percent of that nation’s flood insurance policies issued , according to a study by the Wharton Center for Risk Management and Decision Processes at the University of Pennsylvania.
John Risk, district insurance manager for Fort Myers and Naples offices of AAA, said the law should help the flood insurance program’s funding.
“I think it’s actuarially very good to make sure the flood program stays intact,” he said.
The program is $24 billion in debt, according to a FEMA spokesman.
Real estate market?
Paula Kiker, broker/owner of Lahaina Realty on Fort Myers Beach, said she is concerned this legislation will affect home prices.
The rate increases, she said, might make it difficult for homeowners with loans to meet their escrow payments. Therefore, more people may put their homes on the market, which would increase inventory and cause prices to destabilize as more properties are available to choose from.
“I do think our inventory will be impacted if this comes down the line,” she said.
So she’s focused on educating her agents and clients about these changes — and telling anyone and everyone to speak with legislators.
Norm Zeigler, 64, has lived on Sanibel Island with his family for almost 19 years. He’s also concerned higher rates may factor into a person’s decision to buy a house.
Because his primary residence is on Sanibel, Zeigler won’t be hit as hard as those with secondary homes. Yet he expects his rates to double or triple.
Zeigler said he leases space for his business, Norm Zeigler’s Fly Shop, but it’s possible some shopping plaza owners may have to raise rates to offset higher flood insurance costs.
Overall, he wishes there were a more comprehensive plan to get the program in better financial shape.
“It’s just taking a butcher’s cleaver to what needs a surgeon scalpel,” he said.
Connect with Andrea Rumbaugh (Facebook) @AndreaRumbaugh (Twitter)