Heidrick & Company Insurance
 



FLOOD INSURANCE UPDATES

The Latest on Flood Insurance

By Chris Heidrick, CPCU, CFP®, ANFI

May 29, 2017

On March 21, 2014, President Obama signed The Homeowner Flood Insurance Affordability Act (HFIAA) into law. This law removes the most harmful provisions of the Biggert-Waters National Flood Insurance Reform Act (BW12) of July 2012. BW12 had some startling effects that were not intended by the sponsors of the bill. The result was a period of extreme impacts for some and increased uncertainty for many. HFIAA established annual premium increases of 8% to 25%, depending on when the structure was built and how it is used.

However, The National Flood Insurance Program (NFIP) is set to expire on September 30, 2017. The Financial Services Committee of the House of Representatives has released a set of draft discussion points, but as of this date no reauthorization bill has been filed in either the House or the Senate. It is likely that the program will be reauthorized. The question is whether reauthorization will be on-time and what changes Congress will make to the program.

Background
The NFIP was not designed to operate like a private insurer. It has no capital or surplus. Instead, it uses a line of credit to the US Treasury. The NFIP is funded entirely by the premiums it collects and receives no other funding from the US Government. The program is re-authorized by Congress every five years.

Between 1974 and 2005 the NFIP borrowed against its line and re-paid its debt several times. As of 2005 the program had no debt. Hurricane Katrina changed that when the levees protecting New Orleans failed, resulting in over $17 Billion in claims. Superstorm Sandy resulted in another $7 Billion in claims and today the NFIP is approximately $245 Billion in debt. However, the NFIP is current in its payments back to the Treasury so the current net-effect is zero cost to taxpayers.

In 2008, Congress could not agree on terms for a five-year reauthorization. The program received short-term reauthorizations 16 times until the Biggert-Waters Act was passed in 2012. The NFIP will need to be reauthorized by Congress again by September 30, 2017.

 

Locally

The City of Sanibel became the first Participating Community in Lee County on April 16, 1979. NFIP flood insurance is only available in Participating Communities which adopt FEMA building standards and flood maps by local ordinance. The flood maps in Lee County have been revised several times over the years. The most recent revision was in 2008. That revision indicated an increased hazard in Sanibel and much of Lee County, but indicated a lesser hazard in Captiva. Re-mapping is currently underway throughout Lee County, with new maps expected around 2018.

Today, all of Sanibel and most of Captiva are in the Special Flood Hazard Area (areas deemed to have at least a 1% probability of flooding in any given year and identified by flood zones that begin with the letters A or V). This means that lenders must require flood insurance for any structure that is mortgaged.

Cost of Flood Insurance
Flood insurance is primarily rated based on the Lowest Floor Elevation in relation to the Base Flood Elevation. These elevations are determined by a Flood Elevation Certificate, which is a FEMA document completed by a licensed Surveyor. The Flood Elevation Certificate is required to prepare a flood insurance quote or application with one exception. Structures built before the flood maps were adopted can be rated using a special set of rates that ignore the elevation difference. These are known as “Pre-FIRM” rates. Pre-FIRM rates are also known as “subsidized” rates, as these rates are inadequate, as opposed to Post-FIRM rates which are adequate, according to FEMA. While an Elevation Certificate is not a requirement for Pre-FRIM structures, it is recommended, as it is the only way to determine how high premiums may go for a given Pre-FIRM structure.


In general, flood insurance premiums tend to be in the following ranges for single family homes:

  • AE Flood Zone – Pre-FIRM: $1,600 to $4,500 per year
  • AE Flood Zone – Post-FIRM: $ 450 to $1,300 per year

  • VE Flood Zone – Pre-FIRM: $3,500 to $7,500 per year
  • VE Flood Zone – Post-FIRM: $5,500 to $15,000 per year

Grandfathering is a method of rating that, under certain conditions, allow premiums to be calculated based on a previous, more favorable rate map. Grandfathering can result in significant premium savings.

 

The NFIP offers limits up to $250,000 for Building and $100,000 for Contents. Deductibles generally range between $2,000 and $10,000, applying separately for Building and Contents. Excess Flood insurance is available from private insurers and provides limits in excess of those offered through the NFIP.

 

Private Flood Insurance
BW12 and the HFIAA created an environment conducive for participation by private insurers. These laws clarified for lenders that private flood policies that meet the definition of “Acceptable Private Flood Insurance” as specified in BW12 MUST be accepted by lenders, though some lenders remain non-compliant with USC 42 4012(a).

Heidrick & Co. offers private flood insurance options from several insurers in addition to the NFIP.

 

As members of the National Flood Insurance Program, Lee County jurisdictions provide Flood Insurance Rate Map information that is required for an NFIP policy along with copies of map panels and Elevation Certificates for parcels that were in the Special Flood Hazard Area at the time of construction. Jurisdictions will also offer flood protection assistance about your client’s structure or parcel, and this may include a site visit. Some jurisdictions may also send you a FIRM letter listing both the required information and additional information including:

·         All FIRM panel information;

·         Flood zone and base flood elevation, presence of floodway or COBRA/OPA zone;

·         Coastal High Hazard Area, Coastal Building Zone, Windspeed Building Risk Category;

·         Evacuation Zone;

·         Watershed identification and related issues;

·         Grade elevation and issues related to the difference between grade and BFE.

Everyone can access basic FIRM information through an online search by address, owner or STRAP number at http://leegis.leegov.com/floodzone. Additional flood hazard research specific to a parcel can be done at http://leegis.leegov.com/leespins/

 

You and your clients will find that the attached Lee County All Hazards Guide link is loaded with information about these important messages:

·         Know the flood warning systems,

·         Protect investment in property and contents with flood insurance,

·         Ask your community floodplain manager about flood protection assistance,

·         Obey hurricane evacuation notices,

·         Before you remodel, learn about flood regulations and building codes,

·         Report blocked ditches, swales and canals to your jurisdiction,

·         Get a print or online copy of the Lee County All-Hazard Guide. *

Please post the Lee County All Hazards Guide document, any of its content, or the above links on your website and pass along to your clients.  We encourage you to please also link to these helpful websites:

·         FEMA’s FloodSmart site: www.floodsmart.gov,

·         Lee County Emergency Operations Center: www.leeEOC.com,

·         Lee County Rain Gage Data: http://waterdata.usgs.gov/fl/nwis/.

 

Posting any of these items on your website helps Lee County jurisdictions maintain flood insurance discounts for your clients.

 


On March 21, President Obama signed The Homeowner Flood Insurance Affordability Act (HFIAA) into law.  This law removes the most harmful provisions of the Biggert-Waters National Flood Insurance Reform Act (BW12) of July 2012.  The Biggert-Waters Act had some startling effects that were not intended by the sponsors of the bill.  The result was a period of extreme impacts for some and increased uncertainty for many.  We are now back to a stable National Flood Insurance Program.  We expect premiums to increase 15% to 25% annually for structures built before flood maps were adopted (1979 on Sanibel, 1984 on Captiva and in Unincorporated Lee County) and around 10% annually for structures built after those dates.

Background

The National Flood Insurance Program (NFIP) was not designed to operate like a private insurer.  It has no capital or surplus.  Instead, it uses a line of credit to the US Treasury. The NFIP is funded entirely by the premiums it collects and receives no other funding from the US Government.  The program is re-authorized by Congress every 5 years.

Between 1974 and 2005 the NFIP borrowed against its line and re-paid its debt several times.  As of 2005 the program had no debt.  Hurricane Katrina changed that when the levees protecting New Orleans failed resulting in over $17 Billion in claims.  Superstorm Sandy resulted in another $7 Billion in claims and today the NFIP is approximately $24 Billion in debt.  However, it is current in its payments back to the Treasury so the current net-effect is zero cost to taxpayers.

In 2008 Congress could not agree on terms for a 5-year re-authorization.  The program received short-term reauthorizations 16 times until the Biggert-Waters Act was passed in 2012.  The NFIP will need to be re-authorized by Congress again in 2017.

Locally

The City of Sanibel became the first Participating Community in Lee County on April 16, 1979.  Flood insurance is only available in Participating Communities, who adopt FEMA building standards and flood maps by local ordinance.  The flood maps in Lee County have been revised several times over the years.  The most recent revision was in 2008.  That revision indicated an increased hazard in Sanibel and much of Lee County, but indicated a lesser hazard in Captiva.  Re-mapping is currently underway throughout Lee County, with new maps expected in 2017 or 2018.

Today, all of Sanibel and most of Captiva are in the Special Flood Hazard Area (areas deemed to have at least a 1% probability of flooding in any given year and identified by flood zones that begin with the letters A or V).  This means that lenders must require flood insurance for any structure that is mortgaged.

Cost of Flood Insurance

Flood insurance is primarily rated based on the Lowest Floor Elevation in relation to the Base Flood Elevation.  These elevations are determined by a Flood Elevation Certificate, which is a FEMA document that is completed by a licensed Surveyor.  The Flood Elevation Certificate is required to prepare a flood insurance quote or application with one exception.  Structures built before the flood maps were adopted can be rated using a special set of rates that ignore the elevation difference.  These are known as “Pre-FIRM” rates.  Pre-FIRM rates are also known as “subsidized” rates as these rates are inadequate, as opposed to Post-FIRM rates which are adequate, according to FEMA.  While an Elevation Certificate is not a requirement for Pre-FRIM structures, it is recommended as it is the only way to determine how high premiums may go for a given Pre-FIRM structure.

In general, flood insurance premiums tend to be in the following ranges for single family homes:

AE Flood Zone – Pre-FIRM:            $1,600 to $3,400 per year
AE Flood Zone – Post-FIRM:          $ 450 to $1,300 per year

VE Flood Zone – Pre-FIRM:            $3,500 to $5,500 per year
VE Flood Zone – Post-FIRM:          $5,500 to $13,000 per year

Grandfathering is a method of rating that, under certain conditions, allows premiums to be calculated based on a previous, more favorable rate map.  Grandfathering can result in significant premium savings.

The NFIP offers limits up to $250,000 for Building and $100,000 for Contents.  Deductibles generally range between $2,000 and $5,000, applying separately for Building and Contents.  Excess Flood insurance is available from private insurers and provides limits in excess of those offered through the NFIP.


The passing of the Biggert-Waters Act of 2012 has completely changed the landscape of flood insurance.  In an effort to look out for our clients’ best interests, Chris Heidrick has immersed himself in the details of the Act and its impact on the local area. 

In May, Chris, who hold’s FEMA’s Associate in National Flood Insurance designation, attended the National Flood Insurance Program’s Convention to discuss the Act directly with FEMA officials.  Upon his return, he wrote his first article on the topic for The Islander.  Since then, he’s been interviewed on the topic for many print publications, performed radio and TV interviews and has presented to local, regional and state organizations.

Below are links to articles written about the Homeowner Flood Insurance Affordability Act recently passed by the House and is expected to be signed into by President Obama soon.  Chris Heidrick is quoted in each one.

http://www.news-press.com/apps/pbcs.dll/article?AID=2016303140026

http://www.island-reporter.com/page/content.detail/id/523515/Flood-insurance-bill-reaches-Obama-s- desk--SWFL-residents-relieved.html?nav=5051

 http://www.jrn.com/fox4now/news/Flood-insurance-relief-comes-to-SWFL-businesses-250398281.html

 

 

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