Nov. 9, 2013
Business owners are among those being impacted by higher flood insurance premiums, and some of these policyholders could find relief if Congress passes new legislation
Jacki Liszak was confused when she opened a letter from the Federal Emergency Management Agency. And then she was stunned.
The letter showed flood insurance premiums for The Sea Gypsy Inn increasing from about $2,700 a year to $47,000 a year.
“Never in my wildest dreams did I think it would go up 2,000 percent,” she said.
Liszak, who owns the inn on Fort Myers Beach, said she purchased the property on Nov. 5, 2012 — and this placed her in one of the hardest-hit categories from the Biggert-Waters Flood Insurance Reform Act of 2012.
Biggert-Waters is working to phase out subsidized policies in the National Flood Insurance Program. But anyone who purchased a flood policy on or after July 6, 2012, saw their subsidized rates replaced with full-risk rates all at once — not gradually.
So Liszak is not paying these higher premiums in order to keep paying the inn’s other bills. And since she has a mortgage, this puts her in risk of being foreclosed on or subjected to forced place insurance, where insurance is purchased on her behalf and included in her mortgage amount.
“It’s penalizing people who need mortgages,” she said. “Why should they be the ones to pay for the whole system?”
The concern for businesses in Southwest Florida, and throughout the nation, is that these higher premiums may affect their ability to open new locations or to remain open in their existing locations.
Biggert-Waters
The goal of Biggert-Waters was to phase out subsidized policies and help make the National Flood Insurance Program financially stable. Subsidized policies — which are known in the industry as being pre-FIRM, or for properties built before the community adopted its first Flood Insurance Rate Map — are being increased to reflect their true flood risk.
However, the law’s implementation is not what many lawmakers had expected. Some of the rate increases are being phased in over time, but many policyholders are seeing the increases all at once. People like Liszak, who purchased a policy on or after July 6, 2012, will see the full increase on their renewal following Oct. 1. And anyone looking to purchase a policy for a pre-FIRM property today will see the higher, unsubsidized rate immediately.
Chris Heidrick, owner of Heidrick & Co. Insurance on Sanibel Island, said most of his barrier island clients who bought a flood policy since July 6, 2012, have chosen to drop the coverage. Most of his clients who had policies in place before that date — and are seeing the rate increases phased in — have decided to keep their coverage. And in the inland areas, he said some pre-FIRM policyholders can get an Elevation Certificate and may actually see decreases in their insurance costs.
Overall, he said there needs to be more data. “It’s still way too early to tell,” Heidrick said.
Proposed fixes
Many lawmakers have sprung into action after realizing how unintentionally drastic some of these rate increases have been.
Congress introduced the Homeowner Flood Insurance Affordability Act of 2013 on Oct. 29. If passed, this bipartisan bill would delay some of the rate increases for about four years until an affordability study called for in the original act is conducted, among other requirements.
One key aspect of the legislation is delaying the increases for people like Liszak who purchased a policy after July 6, 2012. However, Heidrick said the law may not provide relief for some of the other subsidized properties affected by the 2012 legislation.
In Florida, the Office of Insurance Regulation released a memo in late October for private property insurers exploring the idea of writing flood insurance in the state as an alternative to the National Flood Insurance Program. And state Sen. Jeff Brandes, R-St. Petersburg, announced Thursday that he is crafting legislation to help allow private insurers offer alternatives to the National Flood Insurance Program.
But some organizations are against delaying changes to the national program.
“Delay doesn’t really accomplish anything,” said Steve Ellis, vice president of Taxpayers for Common Sense, a budget watchdog organization based in Washington, D.C.
So instead of delaying the rate increases, Ellis said he wants to see targeted reforms that help the people who need it and that moves the National Flood Insurance Program toward being financially stable.
His recommendations included putting a small surcharge on all National Flood Insurance Program policies and using this money, on a needs-tested basis, to help people pay the rate increases or to provide them with mitigation assistance. He also recommended extending the length of time that rates would increase and changing the date that premiums would rise for new home sales.
Impact
Many are concerned with how higher flood insurance premiums could impact businesses and their communities.
Heidrick said the rate increases are being phased in for most business owners, so the impact could be felt over time. Increases could cause tenants to be phased out as their landlords pass costs along, he said, and it could also prevent new businesses from opening.
And Liszak said she’s noticed it impacting the sale of residential and commercial properties. She’s also concerned it could affect tourism if businesses like hers close.
“It’s a small ripple that turns into a big tsunami, and it’s really scary,” she said.
Another person seeing higher costs is Sandy Stilwell, CEO and owner of Stilwell Enterprises & Restaurant Group. She is building an American cuisine restaurant with a Cajun flair called SS Hooker’s, and it will be located near the Sanibel Causeway.
Stilwell had previously owned a building constructed in 1984 at the same location that received subsidized flood insurance. She tore down that office building and bait shop to build this new restaurant, and now her flood insurance is increasing from about $1,000 a year to an estimated $34,000 a year after construction is completed, despite plans to build 19 feet above ground level. Her new building is not receiving subsidized rates.
Stilwell said she was not expecting that high of an increase, and she might have rethought the construction of her restaurant if she’d known. But for her business, she’s not too concerned about its long-term success.
“I think that we’re going to be very successful,” she said, “but it’s going to be challenging this first little bit until we open.”
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