Flood insurance rates sends chill through market
Although federal legislation may put a four-year freeze on some flood insurance premiums, higher premiums – some costing as much as $32,000 a year for $250,000 of coverage – are sending shockwaves among Warwick homeowners. Some, who can’t afford such rates, are looking to sell but wonder if they will find buyers.
Phil Slocum of Slocum Realty and Insurance said the higher rates have been responsible for buyers backing away from deals. He said the higher rates “have damaged the real estate transactions.”
Insurance rates have also put some owners in a bind, forcing them to sell their property. Homeowners looking to sell were interviewed for this story but asked not to be identified.
“The law is totally and completely wrong,” said Ward 5 Councilman Ed Ladouceur in an interview Tuesday. “Washington needs to correct the law.”
The law in question is the Biggert-Waters Flood Insurance Reform Act of 2012, which aims to phase out federal flood insurance subsidies for some properties and implement full-risk premiums on new property sales. The law was driven by losses since Hurricane Katrina that have forced the Federal Emergency Management Agency to borrow an estimated $25 billion from the U.S. Treasury to pay claims.
While hurricanes, flooding and storms in other parts of the country have caused significant property losses, sections of Warwick that are within a flood zone have gone without damage for years and, in many instances, survived even the 1938 hurricane that washed away hundreds of coastal properties. That history has some property owners questioning why premiums are so high when history has shown they are reasonably safe. Ladouceur is asking that question, too.
“I want to see a risk study. What is at risk for 1,871 homes?”
The councilman is referring to the 1,871 Warwick property owners who have flood insurance. According to the Rhode Island Emergency Management Agency, about 40 percent of these homeowners hold federally subsidized policies.
Michele Burnett, RIEMA floodplain coordinator, acknowledges many sections of the state have escaped serious flooding in recent storms, and that is a good thing. However, the program is based on experience nationally and the attempt of the 2012 legislation is to put it on a stable footing and build a 5 percent reserve going forward.
Even if the Flood Insurance Affordability Act passes, Burnett points out property owners will face the same situation in four years.
Burnett further observes flood maps, on which the flood zones are based, are only as good as the day measurements were taken and she asks how communities and the program will cope when sea levels rise.
“From the projections we’re seeing it [sea level rise] is going a lot faster than we think,” she said.
Projections offered by a Climate Leaders Summit held last month with Senator Sheldon Whitehouse said Narragansett Bay sea level has risen 10 inches since the 1930s and is projected to rise another three to five feet.
Whatever happens in years to come, Burnett concurs that changes in the flood insurance program may make it impossible for some homeowners.
“It can make of break whether you can afford to live in your home,” she said.
Oddly, since premiums are based on two types of flood zones, “A” that is less severe than “V” and how far above or below livable space is from the base flood elevation (BFE) some shopping for insurance are finding premiums for the same property can range between $12,000 and $32,000.
“They shouldn’t be different,” Burnett said.
The explanation she offers is that, without an elevation certification, a cost that falls on the property owner, the rate is being calculated on the basis of the maps.
Although retaining a qualified surveyor to calculate elevations can be expensive, Sean Daly, vice president of sales and marketing for Affiliated Insurance Managers of Warwick, argues it can be the best investment.
Daly handles a lot of commercial flood insurance and tells the story of a Connecticut hotel that was looking for $500,000 in coverage (the maximum for commercial policies). The quote came in at $23,000. After obtaining an elevation certificate that put the property a couple of inches higher than what was initially calculated, the premium dropped to $1,300. The cost to obtain the certificate was $1,100.
“The best recipe is to get the certificate whether it is required or not,” says Daly.
He notes that the certificate is a one-time cost that could reap lower premiums for years. He says, unlike automobile insurance where premiums are based on the experiences of a large pool of drivers, the only people buying flood insurance are in flood zones. Further, the severity of storms and flooding is unpredictable, making a risk profile hard to develop.
He sees no way out for property owners facing whopping premiums. Banks, he said, will “force place coverage” adding premium costs to monthly mortgage payments. In addition, he said he is finding banks require the maximum $250,000 in coverage, although the mortgage may be less. Flood insurance is a requirement on mortgages within flood zones.
The impact of eliminating subsides will be felt gradually, as policies are renewed.
Recognizing this may come as a shock, Gov. Lincoln Chafee, working with RIEMA, sent out letters to more than 20,000 property owners last month. In the letter, he cites passage of legislation phasing out discounts.
“Congress made overarching changes intended to eliminate some artificially low rates and discounts for NFIP policyholders that are no longer sustainable for the federal program.” He goes on to note changes may be delayed, although there is no guarantee, and he urges people with questions to contact the United Way 2-1-1 and visit the RIEMA website.
That’s of little consolation to Ladouceur, who maintains that this is a problem created in Washington and needs to be fixed by Washington.
Speaking of those who can’t afford to pay off their mortgage and thus self-insure or can’t find buyers for their homes because of the cost of flood insurance, Ladouceur said, “They’re not going to be able to leave their home. They’re screwed.”
“These are innocent homeowners and all of a sudden you are increasing their premiums three times. There should be a standup outcry because of what it’s going to do to people,” he said.