Federal Emergency Management Agency

Flood insurance premiums could double in four years

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July 3  |  Federal Emergency Management Agency, News  |   Danielle Szeliga

President Barack Obama is expected to sign a bill this week that would, among other things, extend the National Flood Insurance Program five years.

The program was set to expire July 31 – during hurricane season – and a lapse would have prevented potential homeowners in flood-prone areas from closing on their mortgages. Since 2008, Congress only approved short-term extensions in part because of disagreements about rate hikes to offset the program’s $18 billion debt.

That changed Friday when both the House and Senate passed a transportation bill that includes a measure extending the flood insurance program until Sept. 31, 2013 and making it more financially sound.

The legislation would raise the cap on premium hikes to 20 percent a year, from 10 percent a year. That means a premium of $1,000 a year could more than double in four years as the increases compound. The bill would also allow increases of 25 percent a year for certain properties such as vacation homes or homes with repeated claims and it would set minimum deductibles of $1,000 to $2,000, depending on the age of the home and the amount of coverage.

More than a third of the flood insurance program’s 5.6 million policies are in Florida, including more than 900,000 policies in Broward, Palm Beach and Miami-Dade counties.

The Federal Emergency Management Agency released new proposed flood risk maps for Broward County. If they’re approved, they’ll allow many residents to drop flood insurance.

Price hike expected for flood insurance

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May 4  |  Federal Emergency Management Agency, Florida, National Flood Insurance Program, News  |   Danielle Szeliga

WASHINGTON – The National Flood Insurance Program, the only source of coverage for 2.1 million Florida households, will raise its rates by an average of 5 percent in October and maybe as much as 20 percent in high-risk areas over the next few years.

Federal officials also have told Florida insurance agents they can no longer provide discounts of up to 15 percent for their customers.

The looming increases are another jolt to home ownership in the state, especially in coastal areas or along inland waterways near sea level, where lenders cannot finance a mortgage without flood insurance. Some of the riskiest areas may even be excluded from coverage, making further development untenable in those parts of the state.

Higher rates are inevitable as Congress lumbers toward revamping the insurance program, which is mired in more than $18 billion of debt.

“People who receive the most subsidies in risky areas will see big premium increases, probably phased in,” predicted Eli Lehrer, national director of the Center on Finance, Insurance and Real Estate at The Heartland Institute in Washington. “Rates have to go up. The real question is: Will the program be sustainable? It cannot continue at the rates it has now.”

The impact is especially significant in Florida, home to 2.1 million of the nation’s 5.6 million flood-insurance policies. The most vulnerable areas to flooding are on the southern tip of the peninsula below Lake Okeechobee and along the Atlantic coast east of Orlando.

A bill already passed by the House would set premiums more in line with actual risks, which would raise rates in some places and lower them in others. The Senate is considering its own version. Both bills would modernize maps used to designate flood zones and determine rates.

Congress must agree on reforms — or pass another extension of the current program – by May 31 to prevent it from expiring. The program has lapsed several times in recent years while Congress remained deadlocked, wreaking havoc with Florida real-estate deals because many cannot be closed until flood insurance is secured.

“There could be a short-term blip if closings are delayed,” said Mike Larson, a real estate analyst at Weiss Research in Jupiter. “It can change what you owe for closing costs. There are some hitches that could come up if you cannot write flood insurance policies.”

The Federal Emergency Management Agency, meanwhile, has informed Florida insurance companies that as of Oct. 1 they will no longer be able to provide “rebates,” or discounts that have sliced premiums for some customers by as much as 15 percent.

A Vero Beach company, Statewide Condominium Insurance, has launched a petition drive, rounding up signatures from Florida residents to pressure FEMA to save the rebates. The goal is 100,000 signatures by Aug. 1.

The company says it has rebated more than $2 million a year to its clients, and some other companies are making similar offers.

Homeowners can purchase flood insurance directly from FEMA. But most buy coverage through insurance agents, who typically deal through an intermediary known as “Write Your Own” companies, which acquire policies from FEMA.

The government gets the full premium and shoulders the risk. But some agents in Florida, making use of state law, rebate some of their sales commissions to attract customers.

A FEMA spokesman said the agency decided to quash rebates because the program is “better served by a system of uniform national pricing that will ensure policyholders pay the same price for the same risk.”

He noted that 48 other states consider rebates “an illegal inducement to purchase insurance,” and that rebates have sparked complaints from competing agents and companies.

FEMA decided that rebates emphasize price over protection and lead to “policy churning,” prompting consumers to buy new or replacement policies year after year that drive up operating costs for the program. And rebates can lead to discrimination among policyholders, FEMA concluded.

But ending rebates means that many Floridians will pay more, said Jerry Wahl, president of Statewide Condominium Insurance. “Times are tough,” he said, “and we believe all businesses should be permitted to conduct operations in accordance with Florida statutes.”

Florida holds 37 percent of policies nationwide.

Of all the cities and counties in the state, unincorporated Miami-Dade Countyhas the most policies by far, with 194,982. Unincorporated Palm Beach County has 72,568, Miami has 48,945, Miami Beach 47,523, Fort Lauderdale 43,299 and unincorporated Broward County 34,809.

Inland Florida generally has less coverage, but some parts are still prone to flooding. Orlando has 3,962 policies, and unincorporated Orange County has 11,744. The risk of flooding gets worse along the Atlantic coast, where unincorporated Brevard County has 27,143 policies.

Florida flood insurance put at risk

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April 30  |  Federal Emergency Management Agency, Florida, News  |   Danielle Szeliga

State officials propose a fix

– The Florida Legislature‘s attempt to speed building permits and kickstart construction has inadvertently put the state’s homeowners in jeopardy of being booted out of the National Flood Insurance Program.

Without flood insurance, you can’t get a mortgage in much of Florida. The impact on housing, construction and the state’s fragile real estate market would be devastating.

But state officials have a fix in the works. They say Florida simply cannot afford to be excluded from national flood coverage.

“Florida is a low-lying peninsula with a lot of land at or below sea level. It’s got to have flood insurance,” said Eli Lehrer, an expert on flood insurance at The Heartland Institute, a free-market think tank in Washington and Tallahassee. “And right now, the National Flood Insurance Program is the only game in town. It’s not realistic to think that Florida could withdraw from NFIP tomorrow.”

The problem stems from a bill passed by the Legislature last month with little sign of controversy.

Since then, the Federal Emergency Management Agency has warned Gov. Rick Scott that the bill contains a provision that could make the state ineligible for federally subsidized national flood insurance. Scott plans to review the bill before deciding whether to sign it, a spokeswoman said this week.

The provision says that Florida communities are no longer required to get approval by any federal or state agency before issuing building permits. But FEMA says it cannot provide flood insurance to communities that do not meet certain conditions. Those include observing federal flood-plain management rules that exclude development in some flood-prone zones and require buildings to be elevated on higher ground or foundations in other risky places.

The new Florida legislation could impede enforcement of such requirements “and may jeopardize the state’s voluntary participation in the NFIP,” FEMA regional administrator Major P. May told Scott in a letter last month.

May noted that Florida is especially dependent on the program. “There are 459 communities participating in the NFIP in Florida,” he wrote, “and there are 2,059,371 flood insurance policies in the state with just over $471 billion in flood coverage.”

That includes 377,575 policies in Broward County, 163,926 in Palm Beach County and 382,499 in Miami-Dade County.

Anxious to resolve the matter, state officials suggested allowing communities to issue permits under the new bill but stipulating that all federal and state requirements be met before actual construction can begin. The idea is to accelerate the permitting process while still complying with federal demands.

In response, FEMA indicated that this arrangement might be acceptable as long as the stipulation is properly enforced. The agency and Scott are now reviewing the matter.

“It’s a sign that FEMA will work with us on this,” said William Booher, external affairs director of the Florida Division of Emergency Management.

“We are confident that any potential issues with this bill in regard to the flood insurance program will be worked out between FEMA and the state, and we would not see any disruption,” he said.

The hitch underscores the importance to Florida of the controversial flood-insurance program.

“It’s $18 billion in debt, with no way to pay it back,” said Lehrer, one of many critics. “It encourages construction where it shouldn’t happen, damages the environment and impedes the development of a private market for flood insurance.”

But unless the private market presents a real alternative, he said, states like Florida will depend on the govenment subsidized program.

Congress has allowed it to lapse in recent years before renewing it long enough for members haggle over a long-term extension. It will expire on May 31 unless Congress takes action.

The House passed a bill last year to revamp the program. The Senate is considering its own version.

Each time the program nears an expiration date, Florida real estate agents fret they will not be able to process new home loans.

“If it is not renewed, there would be a lapse, which would wreak havoc with real estate closings, particularly in Florida.” Lehrer said. “This has happened several times in the last five or six years. It’s not an end-of-the-world situation. They (Congress) just kick the can down the road again.”

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