Thursday, January 9, 2014

Will anyone rescue waterfront property owners drowning in flood insurance rate hikes?


Ron Weaver, Guest columnist
Jan 8, 2014

Kathleen Cabble
Flooding in Gulfport in 2012 during Tropical Storm Debby.

The Florida Senate Committee on Banking and Insurance meets today to discuss a proposed state bill that was recently introduced by Sen. Jeff Brandes to address some of the issues caused by the Biggert-Waters Flood Insurance Reform Act, which was signed by the President in 2012.
Some people expected that the U.S. Congress would amend or delay certain parts of the Biggert-Waters Act before the end of 2013, but as the year came to a close, Congress had not approved any amendments or delays, so the act is still the law. It remains to be seen whether Congress will approve any changes to the act in early 2014 and whether the state or private insurance companies will act to fix the problems caused by it. Floridians have paid billions more to the National Flood Insurance Program over substantial periods of time than paid to them in claims.
The Biggert-Waters Act addressed the NFIP and made major changes to it, including important changes to flood insurance premium rates. Many of the premium rate changes went into effect on Oct. 1, 2013 with up to 25 percent annual premium rate increases or more, especially for owners of second homes or properties with not insignificant prior flood claims. Other changes, such as an escrow requirement for certain lenders, are expected to be implemented in 2014. The act seeks to eliminate subsidized flood insurance premiums, and some of the policyholders who were paying subsidized rates have already experienced, or could soon experience, large premium rate increases.
Many smaller single-family homes on or near the water could be negatively affected by this act, which could make it more difficult for some homeowners to afford flood insurance.
Some are concerned with the negative impact that the act might have on Florida’s recovering real estate market, as some people are not willing to buy homes that might subject them to high flood insurance premiums. While single-family home sales and prices in Tampa Bay appear to have increased overall in 2013, at least one initial study has suggested that home sales in neighborhoods in flood zones have decreased in the Tampa Bay area since the premium rate increases under the Biggert-Waters Act went into effect on Oct. 1. In one neighborhood, sales dropped to a third of what they were before the premium increases, although other factors may also be involved.
To address concerns over the sometimes dramatic premium increases and other unintended consequences caused by the Biggert-Waters Act, a few federal bills were proposed in 2013 that would amend and/or delay certain provisions of the act. Proposed bipartisan legislation was introduced that would delay many of the rate increases for up to approximately four years. Another proposed bill would delay the implementation of certain premium rate increases until March 1, 2015 and would allow certain eligible policyholders to make monthly payments. Yet another proposed bill also would allow for monthly payments in certain situations and proposes alternative amendments, including a maximum annual premium rate and a 10-year phase-in period for certain premium rate increases.
The current text of the proposed state bill that was introduced by Brandes would add two members to the Florida Commission on Hurricane Loss Projection Methodology, and the commission would be required to adopt principles and standards regarding flood loss. Additionally, the proposed bill seeks to provide other options for homeowners to purchase affordable flood insurance by promoting the expansion of the private flood insurance market in Florida. Under the proposed bill, private insurance companies could offer flood insurance policies that would not cover additional living expenses or personal property, and at a minimum, private insurance companies would be required to offer deductibles for flood losses equal to the NFIP’s deductibles. The proposed bill’s current text would also allow private insurers to offer more limited policies (for example, covering the outstanding mortgage amount).
Any proposed solution – whether federal, state, private, or otherwise – will need to be carefully studied and considered to ensure that the solution does not ultimately make the long-term fiscal and flood insurance problems worse and that the NFIP deficit does not increase dramatically if the country experiences bad storm years in the future.
As we begin 2014, it will be interesting to see how quickly Congress and the states might address some of the concerns about the Biggert-Waters Act.

Ronald L. Weaver is a real estate and land use attorney and a partner in the Tampa office of Stearns Weaver Miller Weissler Alhadeff & Sitterson PA.

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