EDITOR’S NOTE: First of two parts.
By JOY BROWN
Those who live and work in flood-prone areas are keeping a close eye on a bill, which the U.S. House may vote on next week, that could delay sharp increases in flood insurance premiums.
The increases not only worry policyholders, but government officials and real estate professionals, who contend sharp spikes in some premiums will force people out of their homes and out of business, or prevent property sales.
“It could impact neighborhoods in ways that would be extremely negative,” said Jim Geyer, Heartland Board of Realtors president.
The federal Biggert-Waters Act is to blame. Its intent is to make the National Flood Insurance Program solvent by gradually raising rates to reflect the “true flood risk” to covered homes and businesses, according to the Federal Emergency Management Agency, which oversees the program.
The U.S. Senate in January overwhelmingly voted to delay the increases for four years as it sought better solutions. Sen. Rob Portman, R-Ohio, voted against the delay, and Sen. Sherrod Brown, D-Ohio, did not vote.
House Republicans blocked a vote on the Senate bill three times in February, but a bipartisan version is expected to be considered next week.
In 2012, when Biggert-Waters was combined with surface transportation funding and approval of the Keystone XL Pipeline, Rep. Bob Latta, R-Bowling Green, voted yes and Rep. Jim Jordan, R-Urbana, vote no. The bill passed 293-127, with 89 percent of no votes coming from Democrats.
Under the law, flood insurance premiums will gradually increase. Premiums that have been most heavily subsidized by the government will see the largest increases, in keeping with the stance that taxpayers shouldn’t have to keep bailing out those who stay where it continuously floods.
If properties with subsidized premiums are sold, the sale will trigger a direct leap to the “true flood risk” premium rate for new owners.
There are 1,106 flood insurance policyholders in Findlay, of whom 816 are subsidized at various levels by the federal government.
Ottawa has 289 flood insurance policies, 184 of which are subsidized.
Subsidized policies typically cover structures built prior to their communities enrolling in the National Flood Insurance Program. Findlay joined in 1985.
The program bases coverage requirements on flood maps, and mandates that new construction be above the “base flood elevation” — the level reached by a 100-year flood.
Many premiums will rise 25 percent a year until they reflect what the government considers a property’s true insurance risk.
Kelley McClurkin, who owns Bread Kneads at 510 S. Blanchard St. in Findlay, said her premium has increased by 25 percent this year, and the government is insisting that she insure all of her outbuildings, too.
She wasn’t aware of the changes until the start of the year, she said.
Some fear that if Biggert-Waters isn’t changed, the premium increases will drive property owners into debt, result in more foreclosures, and seriously damage housing markets in flood-prone communities across the country.
Also, communities in the National Flood Insurance Program’s Community Rating Sytem, which provides premium discounts for those living and doing business in places that go above and beyond program requirements, are seeing those discounts offset by Biggert-Waters.
Ottawa has been in the community rating system since 1995, and receives a 5 percent discount.
“Biggert-Waters is pretty much negating any benefit we’re deriving from the (discount) program,” said Tony Schroeder, agent and owner of Kersh Insurance Agency in Ottawa.
Sen. Bill Nelson, D-Fla., said he has heard estimates that about one-quarter of policyholders won’t see a premium increase this year, or at least until fall, thanks to House and Senate agreement in January on an omnibus spending bill. The bill included a provision that delays FEMA’s ability to use updated flood maps to prepare rate increases.
Properties with delayed premium increases are those considered to be “grandfathered.” They are properties that were built to code, but are now considered to be noncompliant because of federal flood maps that were introduced or updated since then.
Unless Congress extends that delay, increases to grandfathered properties will begin next year.
The National Association of Realtors said it supports “the intent” of Biggert-Waters, but said the government failed to predict the magnitute of rate increases and didn’t “warn homebuyers of rate shocks before purchasing their property.”
“It’s scary crazy, actually,” Geyer, the real estate man, said of the impact of the law.
Some home sales here have already been foiled by expected insurance rate increases, he said.
“I just don’t think FEMA and the legislators have done their homework. This will really impact the market in a big way,” Geyer said.
Biggert-Waters is affecting potential sellers, Geyer said, because it requires those with property in flood zones to obtain elevation certificates that indicate where the lowest part of a structure stands compared to the “base flood elevation” level for that parcel.
Hiring a surveying company to do that work costs between $350 and $600, Morgan Smith, a senior account executive for United Insurance Service, told those attending a recent Heartland Board of Realtors lunch.
At the lunch, horror stories were swapped.
“We had one case where the property being sold was worth $125,000. The (flood insurance) deductible was $5,000 and the annual flood insurance premium was $1,260. With the Oct. 1, 2013, changes required by Biggert-Waters, after the seller had obtained an elevation certificate, the annual premium jumped to more than $6,000 a year,” one real estate agent said.
During a Findlay City Council budget hearing in December, Todd Richard, Findlay’s flood plain administrator, said he knew of one city commercial property where rates have already tripled.
Buyers are starting to balk when they find out how much more flood insurance is going to cost them, according to bankers and real estate agents.
“It’s going to be very difficult for you guys to sell properties that are in the flood zone,” Smith told the Board of Realtors.
Smith and Geyer urged agents to educate people well in advance about potential flood insurance premium increases.
Monday: FEMA’s flood of red tape.
Send an E-mail to Joy Brown
- The Docket
- Member Service