Beginning Oct. 1 the program will eliminate any subsidy for properties that are sold. New homeowners will continue paying the lower rates until their first policy renewal, and owners who let their subsidized policies lapse will trigger rate increases.
© September 24, 2013
Mother Nature has spared U.S. coastal cities from devastating hurricanes this season, but some local homeowners should brace themselves nonetheless.
The cost of flood insurance for thousands of properties in South Hampton Roads soon could go up - significantly in some cases.
Subsidies that have kept insurance costs down for many homeowners across the country will be phased out beginning Oct 1. And those discounts no longer will be transferable from owner to owner, which will add hundreds or thousands of dollars to the annual out-of-pocket costs for buyers of such homes.
On top of that, the Federal Emergency Management Agency is redrawing flood zone boundaries. Houses that aren't in a flood zone now might find themselves on the riskier side of the line once the maps are finalized in 2014. Those homes will have to be insured against flooding.
"This is a major evolution, and that's why everybody is so - I guess the best word to say is 'afraid,' " said Terry Croft, operations manager for The Braun Agency, an insurance company in Virginia Beach.
About 20 percent of policies are subsidized nationwide, but in South Hampton Roads, the rate varies, city to city.
Because Virginia Beach is a relatively newer community, only about 4 percent of properties with the insurance have subsidized rates, said Rebecca Lear, certified flood plain manager for the city. In Norfolk, about 18 percent of flood insurance policies are subsidized.
The upcoming changes were prompted by a 2012 law that sought to shore up the federal flood insurance program, which is deep in debt. Still, across the region and in other coastal areas, many are concerned that the shift will hurt home values and the real estate market.
Federal officials say they are moving toward a system in which the cost of all insurance policies will be based on the actual flood risk a homeowner faces.
That risk partially depends on the elevation of a house, so there's not a one-size-fits-all formula to calculate new premiums.
In general terms, if you are required to have flood insurance because you live in a risky zone, and if your house was built before the mid-1970s, you likely have been paying a subsidized rate for flood insurance.
Croft urges homeowners to talk to their insurance agents about whether they will have to pay higher premiums. Agents also can suggest ways to lower insurance bills by making home improvements that mitigate flood damage.
Beginning Oct. 1:
- The most significant change in the insurance program will be a complete elimination of any subsidy for properties that are sold. That immediately increases - in some cases substantially - the cost of buying a home that has had subsidized insurance.
- Property owners who let their subsidized policies lapse will trigger immediate rate increases.
- Subsidies will begin to be phased out on businesses and homes that have suffered severe or repetitive losses.
- Those who purchased a home with subsidized insurance after the Biggert-Waters Flood Insurance Reform Act was passed by lawmakers last year also face the loss of that discount after their first policy renewal.
Vacation and investment homes with subsidized insurance started seeing a phaseout of the discounts in January.
All subsidized holders of flood insurance eventually will need to get an elevation certificate to help determine the actual risk they face. Otherwise, their rates will continue to climb, even if, based on risk, they should be paying lower premiums.
Elevation certificates are used to measure how far above or below a house is to the base flood elevation, and they tend to cost $250 to $700, Croft said.
The National Flood Insurance Program was created in 1968 because fewer private insurers were willing to take on the risk.
"That's the issue with flood insurance as a whole," said Lenny Newcomb, Norfolk's manager of land use services. "It's an insurance policy against inevitable damage."
The program was designed to provide an affordable way for homeowners to protect themselves. It largely worked like it was supposed to until 2005, but the flood insurance fund has been in the red ever since Hurricane Katrina devastated New Orleans.
The Biggert-Waters Act is designed to make the fund solvent again. As of July 31, the flood insurance program owed the U.S. Treasury about $24 billion, according to the General Accounting Office.
"The federal government realizes it's not a reasonable investment to insure at a subsidized rate when you know there's going to
be a flood," Newcomb said.
Still, lawmakers were scrambling last week to find a way to delay the rate hikes.
U.S. Rep. Bobby Scott, D-Newport News, said the federal government should spend more money shoring up its infrastructure to protect homes from flooding. He cosponsored a resolution that would delay for three years some of the premium increases and require FEMA to work closer with state and local officials when creating new maps.
"We have, unfortunately, prioritized tax cuts over keeping up with our infrastructure needs," Scott said in a statement. "It was never the intent of Congress, however, to impose punitive and unaffordable flood insurance premiums as a result of Biggert-Waters."
SmarterSafer.org, a coalition that backs "smart natural catastrophe policy," and some other interest groups have urged lawmakers to let the subsidies disappear as planned.
"Not only have subsidized premiums resulted in a huge burden to U.S. taxpayers, but these subsidies have incentivized development in environmentally sensitive and flood-prone areas. resulting in even greater losses," SmarterSafer.org wrote in a letter to House leaders.
Flood plain managers and insurers say Biggert-Waters is bringing about the first substantive changes to the flood insurance program since its inception.
Scott Hunter, founder of Virginia Beach-based Comparity, said he has a client whose $2,000 annual flood insurance premium will jump to $5,000 after the subsidies disappear. His company helps its clients buy coverage by comparing rates from more than 20 insurers.
Another startling statistic: In 2002, fewer than 200 properties in Norfolk had two or more flood claims in their history. In 11 years, that number has climbed to nearly 900, Newcomb said.
"The homes are in areas that have proven over and over again that flooding will occur - not only during hurricane events," Newcomb said.
Flooding in Hampton Roads is a problem that's not going away, Newcomb said. During the past three major flood events - all within the past 10 years - water has risen almost as high as it did during a 1933 hurricane that has been cited as last century's most severe storm.
Through grants, the city is in the process of elevating 12 houses that routinely flood, and officials have applied for federal grants that would pay to raise 25 more.
"Every imaginable thing we can come up with, we're addressing it," Newcomb said.
Chesapeake is one of the first cities in South Hampton Roads to receive preliminary flood zone maps from FEMA. Residents can compare the new and old maps online, said Jay Tate, flood plain administrator for the city.
Tate said he had been told flood insurance rate increases based on those maps could range from 25 percent to 850 percent.
"It's like separating the good drivers from the bad drivers," he said. "Whatever your true risk is, you're going to pay for it."
There is a chance the rate changes could work in a homeowner's favor. Elevation certificates might show that some residents have been paying more than they should have been, and their rates will drop. Some who are now in a risky zone might wind up in the clear when FEMA's insurance rate maps come out next year.
But the reverse is much more likely. And if that's the case, the changes could drag on Hampton Roads' real estate market, which already has been struggling under the weight of military spending cuts.
"There's no question about it. It will have some negative impact on the housing market," said Vinod Agarwal, professor of economics at Old Dominion University.
Sandra DiCarlo isn't required to pay flood insurance on her home in Norfolk's Colonial Place, but she took out a policy because the neighborhood - bordered by the Lafayette River and its offshoots on three sides - is prone to flooding.
She worries she will be required to carry a policy when the new flood maps come out, and she is especially concerned about what that means for her property value.
"If I want to sell my house, they're going to say, 'Is flood insurance required?' and if it's a big, fat bill, who's going to want to live there?" DiCarlo said.
One neighbor who grew up in Colonial Place says water didn't rise above the bulkhead around the neighborhood when he was a child, DiCarlo said. Now it washes over during high tide.
Water has seeped into her basement four times over the past 13 years, but there wasn't enough damage to warrant filing claims, DiCarlo said.
Sea level rise, sinking ground and the severity of recent storms are hot topics among neighbors, but they don't talk about leaving, she said. Has DiCarlo considered it?
"I don't want to admit it, but I have," she said.
Sarah Kleiner Varble, 757-446-2318, firstname.lastname@example.org
Click a thumbnail to view the full-size image. Buy Pilot photos here.