Keys Homes
Sunday, July 28, 2013
Evolution of flood insurance for coastal properties

By REGINA CORCORAN Citizen Columnist

Better known as the Biggert-Waters Reform Act of 2012 or BW12 for short.

In 1965, Hurricane Betsy caused the most expensive national disaster in the history of the United States with losses exceeding $1 billion.

That triggered the federal government to institute the National Flood Insurance Program (NFIP) allowing property owners in high risk areas to purchase flood insurance to protect against future losses.

By 1976, somebody flipped a light switch. The higher off the ground your structure is, the less damage you will suffer. Thus, began the development of the Base Flood Elevation or BFE. A building elevated four feet above the BFE was entitled to lower insurance premiums than one at the BFE.

Of course, that was the beginning of stilt homes. And of flood maps, known as Flood Insurance Rate Maps (FIRM).

Zone X - Very good. Only likely to flood once in 500 years. The dwelling owner is not required to buy flood insurance.

Zone AE - Not so good. The site has a 1 percent per year chance of flooding, or likely to flood at least once every 100 years. The dwelling owner must buy flood insurance.

Zone VE - Very Expensive flood insurance premiums. There's a percent chance of flooding over the life of a 30-year mortgage. Not only that, but due to their coastal locations, the additional risk of storm waves exists.

Did you know the Key West Assn. of Realtors MLS listings have a field for a flood zone? This is a great time to consider adding a field for BFE, too. Soon buyers may want to know the zone and BFE even before they ask the price. But wait. I'm getting ahead of myself.

In 2004, legislators discovered a new hole in the NFIP. A small fraction of premium payers (10 percent) was receiving a large portion (25-30 percent) of claims pay outs. This, of course, required a new expression -- "repetitive losses." The insurance premiums for those properties went uppp.

Then came the monster storms of 2005, Katrina and Wilma with losses in excess of $17 billion.

The goal of the Biggert-Waters Reform Act of 2012 is to get a more evenly distributed ratio between flood insurance premiums and the risk of loss.

Here's the problem. Those of us who pay flood insurance on post-FIRM structures have been subsidizing the owners of pre-FIRM buildings.

Tag! You're it! The losers in the new BW12 legislation will include some, but not all, owners of pre-FIRM buildings, repetitive loss insureds, coverage for properties where the claims exceed the value of the structure, new policies and renewals of lapsed policies.

The link to view how this may affect property owners is: http://www.fema.gov/library/viewRecord.do?id=7763

Guess which state has more subsidized policies than any other state in the country? I'll give you a hint. It's not Alaska. Right! Florida! Lucky us.

The county with the highest count is not Monroe, but rather some of the other coastal counties, like Miami-Dade and those on the West coast of Florida. The first shock wave will be for owners of non-primary residences followed by owners of business properties. These will see premiums increase 25 percent per year until premiums reflect full risk rates.

Those not insured, with a lapsed NFIP policy and purchasers of new policies after 7/6/2013 will pay full-risk rates immediately.

There are some cases where the premiums may go down instead of up. This is most likely to occur where the pre-Firm building is elevated at least four feet above the BFE. However, anyone with a dwelling four feet below the BFE could have insurance premiums higher than their mortgage payment (assuming a mortgage of less than $100,000 at a rate less than 5 percent).

That's why buyers of pre-FIRM homes will want to know the flood zone as well as the BFE before they sign a sales contract.

What do you think?

Regina E. Corcoran, SRA, is a Florida real estate broker, state-certified residential appraiser and residential contractor. She is president of AmeriRealty Corp. and vice president of AmeriMortgage Corp. She can be reached at ReginaECorcoran@cs.com. Corcoran writes her column exclusively for The Citizen. It appears every other Sunday.

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