Still Not On Solid Ground
Although this year’s Homeowner Flood Insurance Affordability Act granted a reprieve from rate hikes of up to 3,000 percent, the issue remains far from resolved.
The latest danger threatening those that own or wish to own a home in this region is very much man-made.
While flooding has always been a reality in this area of the country, two years ago, in an effort to put the National Flood Insurance Program (NFIP) on sound footing after several extremely costly disasters, then-Rep. Judy Biggert, a Republican from Illinois, and Rep. Maxine Waters, a California Democrat, teamed up to write the Biggert-Waters Flood Insurance Reform Act of 2012. The intent of the law was to ensure homeowners living in low-lying, flood-prone areas paid the full cost of their flood insurance, rather than getting by with lower rates subsidized by NFIP.
When the newly-calculated premiums were calculated, though, the figures were jaw-dropping, with costs jumping in some cases as much as 3,000 percent.
Real estate agents immediately predicted disaster.
Trudy Dowell, an agent with Re/Max Real Estate Partners on the West Bank, shared that one of her clients living in the Belle Chasse/Jesuit Bend area was paying less than $1,500 annually for flood insurance. Under Biggert-Waters, the premium was set to jump to $17,000 a year.
“You’re talking about another housing crash,” Dowell says. “The housing market has been terrible for a few years anyway.”
After a lot of testimony protesting Biggert-Waters, Congress passed the Homeowner Flood Insurance Affordability Act of 2014. The new act stopped the big increases and provided for gradual rate increases instead. Most subsidized properties can have their premiums raised by no more than 18 percent annually (with some exceptions), and grandfathering in of existing policies is allowed (again, with some exceptions.)
Meanwhile, the Federal Emergency Management Agency, or FEMA, will look at ways to make flood insurance more affordable, with the aim of most policyholders having premiums of no more than one percent of the value of their coverage. In return for the relief, all residential policies will include a $25 surcharge, which will continue to be assessed until all subsidies are eliminated. The affordability act doesn’t do away with Biggert-Waters forever; it provides for the matter to be revisited in 2017.
The economic development group GNO Inc. played a major role in convincing Congress to do something about the sudden and severe rate hikes.
“Biggert-Waters would have made our economy untenable,” says GNO Inc. President, Michael Hecht. After a board member alerted him to the problem, representatives from the organization joined eight parish presidents on a trip to Washington to push for a new law.
Eventually, GNO Inc. became part of a coalition that included people from 35 states and 250 organizations. In his testimony to a Congressional committee, Hecht said that implementation of Biggert-Waters would “ultimately destroy NFIP itself, as policyholders will be forced into foreclosure and leave the program in droves, sending it into a death spiral.”
Location is everything
The act delaying Biggert-Waters calmed the homebuying public down considerably, says Evelyn Wolford, a Latter & Blum agent and president of the New Orleans Metropolitan Association of Realtors.
“Flood insurance is certainly a concern, but paranoia and panic are alleviated to a degree,” she says, adding that people can be fairly sure their insurance rates will be stable for a few years.
But if the country is hit with a major storm like Hurricanes Katrina and Sandy, rate hikes could be necessary sooner rather than later.
Wolford works on the West Bank and says homeowners there are less worried about flooding now that improvements have been in plumbing and drainage.
Property owners in the Lakefront/Lake Vista area are also in pretty good shape, says Sandra Green, an agent with Gardner Realtors. She says that those in Lakeview north of Robert E. Lee Boulevard toward the lake have very affordable flood insurance premiums, and on the other side of Robert E. Lee, new construction built to proper elevation levels also have low premiums.
It’s a different story in eastern New Orleans, says Gardner agent Robin Stewart. She points out that some neighborhoods have had lots of foreclosures, and the flood insurance policies have lapsed. Buyers purchasing these homes can’t be grandfathered in to policies with low rates because of the lapse, Stewart says, and they may face very high premiums when they buy new policies.
What to do
To make sure they get the best flood insurance deal possible, prospective homebuyers should hire a civil engineer to do a flood insurance survey, especially if the property under consideration is rated “A” (higher probability of flooding), says Parke Ellis, chairman of Gillis, Ellis & Baker Inc. insurance company. The surveys used to take a day or two, but civil engineers are in such demand that you need to allow a couple of weeks, he says.
Because floods are certain to continue to occur, the National Flood Insurance Program will need more revenue. According to Neal Conolly, president of Wright Flood Insurance Co. in New York, until Hurricane Katrina the NFIP premiums and loss were in balance. Hurricane Katrina caused more than $18 billion in claims, while this past year Louisiana policyholders paid in less than $400 million.
“Everybody agrees there will have to be some increases,” says GNO Inc.’s Hecht. But before premiums jump, he recommends making sure that every homeowner required to have flood insurance (everybody with a federally insured mortgage) buys and keeps it. His other ideas include either privatizing the program, or charging each household in the U.S. $200 toward catastrophe relief.
Jeff Albright, president of the Independent Insurance Agents & Brokers of Louisiana, says it is unrealistic to expect the NFIP to cover both the ordinary disasters that cause flooding as well as the so-called “super storms,” which result in billions of dollars’ worth of damage. He believes the goal should be to keep the program self-funded but create a catastrophic pool like Hecht suggests for extraordinary events.
Dan Burghardt, president of Dan Burghardt Insurance, has another idea. He says the standard homeowners insurance policies already contain coverage for events that only occur in some parts of the country, such as the collapse of a roof from snow. Floods are happening now in places like Arizona, so his argument is that flood insurance should be built into all standard policies, thereby spreading the risk over many households to keep the cost low.
No matter what options end up on the table, one thing is certain: the clock is ticking
Potential homebuyers should have these documents on hand when inquiring about flood insurance:
• Elevation certificate
• Current appraisal
• Copy of the current flood insurance policy, if available
• Pictures of the front, sides and back of the structure
• Requirements by lien holder and mortgage company
• Exact date the policy is to start
Source: Dan Burghardt Insurance