By Carole Hawkins, [email protected]
Flood insurance is going up.
Wait. Didn’t that already happen?
Like all things insurance related, it’s a little confusing.
But yes, insurance rates will go up this year. And not just because of Biggert-Waters, the 2012 law that ballooned insurance rates by removing federal subsidies from homes in flood zones.
A different rate hike — this time, a surcharge — goes into effect April 1. It will tack an extra $250 onto flood policies for vacation homes, rental homes and commercial buildings. For primary residences, the increase is much less — $25.
George Garcia IV of First Beaches Insurance in Jacksonville Beach expects it’ll make it more difficult to sell flood insurance to people with second homes, where $414 per year is currently a common rate. Also, for people with multiple rental properties, it’s a significant rate increase, he said.
The new fee, ironically, comes from the Homeowner Flood Insurance Affordability Act — the law Congress passed last year to curb, what in some cases were, dramatic increases in flood insurance. The law capped all rate increases at 18 percent per year. But, it also added the surcharge, which is not subject to the 18 percent cap.
Patty Templeton-Jones is the executive vice president of Wright National Flood Insurance Co., a Tampa-based company that services the National Flood Insurance Program.
Last year’s law was designed to bring relief to homeowners, but not necessarily to commercial properties or rentals, she said.
“We still have to get dollars into the flood insurance program, to get on more sound financial footing,” Templeton-Jones said. The savings homeowners saw with the 18 percent annual cap were paid for, in part, by the new surcharge, she said.
From the point of view of homeowners, problems with flood insurance started with the passage of Biggert-Waters in 2012. But in reality, it began before that.
Older homes in flood zones have long benefited from a federal subsidy that kept flood insurance rates low. The program worked fine for decades. Then, hurricanes Katrina, Rita and Wilma and Superstorm Sandy hit.
The National Flood Insurance Program now carries so much debt — $45 billion — paying it all back without changes to premiums would be challenging at best, Templeton-Jones said.
The Biggert-Waters Insurance Reform Act of 2012 eliminated the longtime subsidies and, over time, will bring flood insurance premiums to market rates. But, unexpected problems arose.
Rate increases were capped at 20 percent annually, but homeowners who were late on a payment lost the subsidy immediately. Also, when the owner sold the home, the buyer lost the subsidy. Flood policy premiums for these homeowners jumped, sometimes by five- to tenfold.
The Homeowner Flood Insurance Affordability Act of 2014 corrected that by grandfathering the subsidies when homes sold or a policy lapsed. It added the surcharge to offset the loss of revenue.
Congress’ intent was to make the flood insurance program solvent on its own, without having to borrow money from the Treasury in the event of a catastrophe, Templeton-Jones said.
Garcia said the new solution is better than the astronomical rate increases sometimes caused by Biggert-Waters, but it will affect more people and may come as a surprise to those who weren’t following the issue last year.
Policyholders should contact their agent with questions about the rate increases and especially if they believe a qualifying home is not being treated as a primary residence.
More information can be found at floodsmart.gov.