Nobody in Pinellas County in general, and the Gulf Beaches in particular, had heard about “Biggert-Waters” until a handful of industry-savvy insurance agents and realtors began to sound the alarm early in August.
Jake Holehouse with Ronald Holehouse Insurance, St Petersburg, explains the background. Because entire communities can be affected flood is excluded from all major types of insurance policies except auto insurance. Private insurers do not like that broad a risk. Without private option flood policies, flood-prone communities used to rely on the Federal government to come in and bail out the community in the event of a flood.
This changed in 1968 when Congress passed the National Flood Insurance Act, which created the National Flood Insurance Program (NFIP). The NFIP is administered by the Federal Emergency Management Administration (FEMA) with the idea of flood prevention and helping people affected by flooding. However, due to the major NFIP-covered flood losses caused by Hurricanes Katrina and Ivan in 2004, and recent Superstorm Sandy, the NFIP fund was about $18 billion in the red.
On July 6, 2012 Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 to extend the flood insurance program for another five years. However, under the bill, flood insurance rates for many Pinellas county property owners will become severely increased.
The extension included two key sections that change the pricing of the program in an attempt to add long term sustainability to the program. Section 205 bill requires that all flood insurance policies purchased after July 6, 2012 receive a full risk rating at renewal starting October 1, 2013. Section 207 states that homes currently receiving a grandfathered flood insurance premium will lose this and will be required to be rated on the newest flood map for the area. Both of these changes have a very negative effect for Florida as a whole and especially Pinellas County.
The following FEMA figures are very revealing:
Some 2.4 of 5.6 million or 40% of NFIP policies are in Florida – the most in any state … Florida has been a net donor state since 1974, with 75 cents of every flood premium dollar in Florida going out of state … Of 268,000 NFIP properties affected in Florida – by far the most in any state — 50,700 or 19% in Pinellas County will be impacted in varying degrees, the most of any county in the USA.
Prior to the NFIP, Gulf Beach communities such as St. Pete Beach, Treasure Island and others north to Clearwater Beach did not have flood maps. Most older homes on the beach were built at grade and are below the ‘base flood elevation’. Because of this, the NFIP created two rate programs. Pre-FIRM means that the home was built prior to the community implementing Flood Insurance Rate Maps (FIRM) They receive a ‘subsidized’ rate because they are built out of compliance with later height requirements. Pre-FIRM homes currently receive a flat rate whether they are at one foot or six feet below the current base flood elevation. In Pinellas County pre-FIRM could be any-thing built prior to 1975. Post-FIRM means that the home was built after the community adopted the flood map so they are rated based on the top of the bottom floor of living space compared to the base flood elevation on the flood map that was in effect at the time of construction.
Section 205 of the Biggert-Waters bill has a direct effect on the pre-FIRM homes and section 207 has a direct effect on all homes. Section 205 says all homes need to be rated to their full risk rating, essentially meaning that the subsidized rate that a pre-firm house is receiving will be removed either at the next renewal or over gradual flood insurance rate increases depending on when the policy was purchased. For Pinellas County this will affect virtually any home built prior to 1975.
Some homeowners or businesses will be affected more than others depending on the specific elevation and occupancy of the building but everyone will be affected. When the full risk rating goes into effect some homeowners could see their flood insurance premium go from $2,000 to $24,000. A common misconception is that current primary residence home owners will not be affected because the bill states that they will still receive a subsidized rate. However, the bill allows FEMA to increase the subsidized rate by 20% per year until they hit the full risk rating of the policy. On top of the 20% increase, the bill adds a mandatory 5% charge for a Reserve Fund to be added to all premiums.
Section 207 of the bill states that grandfathering rates will be phased out over a five-year period starting in 2014. Currently, FEMA allows homeowners who built their house in compliance to the flood map in effect at the time of construction to rate their house to that flood map. For example, if you built your house in 1995 you would have built to the 1983 flood map, not the 2003 flood map. If you built your house with a top of bottom floor at 11 feet and a base flood elevation of 10 feet you would be rated as one foot above base flood elevation. If the 2003 flood map changed the base flood elevation to 12 feet you would be rated as being one foot below base flood elevation on the new map rating. In terms of premium you would see a change from about $650 to $3,500. However, the policy was eligible to be rated based on the 1983 flood map because it was built in compliance to the local building code in effect at the time of construction. Section 207 of the Biggert-Waters bill states that you would now be subject to the new flood insurance rate even though you built your home correctly at the time of construction.
Other changes include an additional 5% to be charged to all flood insurance policies as a Reserve Fund fee. Property owners who own the property as a non-primary residence or as a commercial property are also going to receive an additional 25% per year rate increase.
Community Impact
Reid Silverboard, Treasure Island City Manager, told Paradise News, “Of 5,800 residential and business structures in Treasure Island, 3,100 or more than half are NFIP properties and will be affected. This legislation is going to have an immense impact on our town, all other beach communities, other areas in downtown St. Petersburg and elsewhere in the County. What we fear most is the impact on pre-firm – built before 1974 – homes and the major change in insurance that will make it more difficult to sell these properties. For a lot of our older ‘mom and pop’ motels, insurance rates will go up significantly and they will have to pass these costs on to their customers. It will also be tough to make renovations, which will lead to future teardowns that will impact property values. This will impact the taxes we collect, and the services we can provide – that will put more pressure on other forms of revenue.”
St. Pete Beach City Manager Mike Bonfield said, “The impact of the recent changes to the NFIP on our residents and business owners is concerning. We have 7,200 residential and business structures, and 4,792 or two-thirds are affected by the pending increases. One positive note is that NFIP flood insurance policies issued or renewed in our City still receive a 15% premium discount as the result of the our improving to a Class 7 Rating in the Flood Insurance Program’s Community Rating System. It is important for Congress to understand the ramifications so we are not simply solving an old problem and creating a new one. The data on premium and claims payments is readily available, so it is just a matter of taking the necessary time to conduct the proper analysis to make sure we are spreading the cost to those creating the real financial risks to the program.”
The City of Treasure Island was the first in the area to hold a flood insurance symposium August 27, with the City Hall meeting room filled to capacity of 150 people and overflow in the Community Center with CCTV. Betty Ryals and Betty Latshaw of Wright Insurance and Anita Ford of Insurance Resources LLC broke some of the bad news to the crowd, explaining the pre-FIRM and post-FIRM increases. (See Wright Insurance Q&A)
Pam Dubov, Pinellas County Property Appraiser, said, “I do not have any good news for you. Housing values have been going up, even since the enactment of the act a year ago, but we will be keeping a close eye on sales that occur in the next few months to see if adjustments in property values are in order.”
She suggested that residents get an elevation certificate on their properties so they know where they stand. She advised that Pinellas County is the most affected county in the nation, with 24,000 properties in the “highly affected” group. She added, “Unfortunately, they couldn’t tell us which properties those were, and we cannot identify them without an elevation certificate.” More recently, her office overlayed county parcel maps on the Federal flood zone maps and calculated that 33,144 single-family homes were old enough to have qualified for discounted flood insurance rates.
Local insurance experts Ron and Jake Holehouse of Holehouse Insurance did an excellent job of handling a question and answer session. They provided suggested letters to be sent to Representative C.W. Bill Young and Senators Bill Nelson and Marco Rubio. They echoed Dubov’s suggestion that homeowners get an elevation certificate done by a licensed surveyor to know where they stand. One such surveyor, Eric J. Hendra of Hendra and Associates, says his South Tampa property is exactly the same elevation as most of ours here on the beaches. He is considering building an elevated home on the land, putting him back into the low risk category. His business card may be found on page 47 of this issue.If your neighbors also want elevation certificates at the same time, ask Eric for a discounted group rate.
Realtor & Hotel/Resort Comments
Zach Sherf, a realtor/associate of St. Pete Beach Realty, was one of the first to raise an alarm about the act’s effect on local the real estate market. Sherf said, “I had a buyer in early August for a non-waterfront St. Pete Beach home that was selling for around $370,000. When the prospective buyer learned his flood insurance premium would increase from $1,600 to $16,000 per year or more, the deal fell through. I also have a pending deal on the other side of the county in Riviera Bay that could be adversely impacted, so the impact is not just on Gulf Beaches properties.”
Judy Brett of Coldwell Banker in St. Pete Beach, a local expert on commercial and business properties, noted, “The impact is devastating and far reaching for many of our clients. The existing ones that are selling their commercial properties are seeking cash buyers because if the buyer needs a mortgage, the bank requires flood insurance. If it’s a cash deal, they can go self-insured as insurance only covers up to about $250,000. Someone with a store or restaurant in a strip center may have a lease for three to five years that doesn’t have pass-through insurance or tax increases. If they don’t have that clause, they could be subject to immediate increases. One way or another, the tenant or landlord has to absorb the increase.”
Tim Bogott, CEO of the TradeWinds Island Grand, confirmed they were facing a 7-figure increase in flood insurance for the coming year, but that was an error corrrected, with just a minimal increase through next July. He said, “The broader question is a major concern to us with no clear answers. It is very hard to get clarity on the next year increase. It will put more pressure on pricing and make it more difficult to compete with properties not having that factor.”
Gregg Nicklaus CEO of the Sirata Beach Resort, noted, “Our renewal was in May with a very modest increase of less than 5% for our three policies. We’re six months from renewals so we have some time to hone in on the impact of what could be a significant increase. It’s a hope it will be delayed but it’s a painstaking exercise. We support our Chamber’s efforts and are trying to help where we can.”
Smaller resort properties on the Gulf Beaches will be hit very hard as well. Phyllis McMillan, General Manager of the 84-room Treasure Bay Motel and Marina in Treasure Island which was re-rated to the “actuarially sound level” when they got a new flood policy, also spoke at the Treasure Island forum. She clarified her comments for Paradise News: “I had increased our flood insurance coverage from $44,000 to $80,000 for our 84-room hotel early this year. Now we are facing an additional $12,000 to $15,000 increase for 2014-15. We’ve never filed a flood claim and like every other hotel and motel on the beaches will have to pass along some of that cost to our guests, making us less competitive with non-flood zone properties. My big concern is ‘Where does it stop?’ Most of us make five-year budget projections and there’s no way to factor in these future increases at this time.”
Vance Poland, Vice President of Resource Property Management, which manages about 300 condominium properties, many in Pinellas County, said, “Only one property, right on the beach, was hit with a 22% flood insurance increase for the coming year. Most have been notified of more normal increases in the 6 to 10% range and we are hoping that the ongoing efforts of our coastal community mayors and the Chambers of Commerce will influence our legislators to delay Biggert-Waters increases.”
Calls to Action
The Tampa Bay Beaches Chamber of Commerce has taken the lead in rallying local activity. CEO Robin Sollie said, “We continue to work on this issue on behalf of our membership and communities. Our message to Congress is to lessen the ramp-up of these increases and look at alternatives.” She noted these actions: “Packages with petition signatures, resolutions, and letters were shipped and emailed to the offices in Washington of Rubio, Castor, Nelson, Young and Bilirakis. All members can check and share this link for updates and tools to use: www.tampabaybeaches.com/chamber/government_affairs.aspx.
As of September 18, the following elected officials are all on board and supporting a delay in the Bill for at least a year. (This is for all sections; and in everyone’s opinion the best we can get at this time): Young, Castor, Nelson, Bilirakis and Buchanan from Florida; Vitter, Landrieu, Crenshaw and Rooney of Louisiana. We have done interviews with all media outlets and have connected them to resources for articles regarding this issue. A forum on September 25 at the St.Pete College Seminole Campus with Holehouse Insurance, Bankers Insurance Group, Pinellas County Property Appraiser and ReMax Preferred of St. Pete Beach had a capacity crowd of 500.”
Senator Nelson’s office told Paradise News, “Senator Nelson is supporting a legislative initiative aimed at delaying the rate increases for at least a year as we gather more information about how many folks are affected and by how much. The Senator is not opposed to making the flood insurance program more financially stable. But it won’t be much good if it turns out folks cannot afford the coverage. Bottom line is this: though the flood insurance program may not be actuarially sound, tens of thousands of Floridians rely on it for affordable coverage – and, keeping that coverage affordable for those in need is an important part of the equation.”
Congressman Young initially wrote to FEMA Administrator Clyde Fugate, former head of Florida FEMA operations. At the recent U.S. Senate Banking, Housing and Urban Affairs Committee hearing on a bill to delay the bill’s impact, Fugate said he does not have the authority to stop it. “I need your help,” he said. “Without some additional legislative support, there is no provision for affordability in this bill.”
Young issued his own statement before the Committee. His bottom line request; “Section 100236 of the law requires a study on the affordability of flood insurance that was to be submitted to the Congress 270 days after the date of enactment. This deadline has passed and the affordability study has not been submitted. FEMA indicates that this study will not be completed until at least 2015, which will be too late to help owners facing unaffordable premiums and considering a short list of options for dealing with the increase. “Continued affordability must be a consideration when implementing new premiums for the NFIP. We must find a way for owners to maintain their flood insurance coverage and mitigate these massive premium increases. Several pieces of legislation have been introduced with a variety of proposals to address this issue and the Congress must decide the best path forward; however that will take time. Unfortunately, there is not enough time to fully consider these options prior to implementation of these new rates, which is why I support efforts to delay implementation of the law until we receive the affordability study and have time to consider options to sustain the NFIP, while still ensuring that homeowners are able to afford coverage.”
The flood insurance situation is a rapidly changing scenario.
STORY by STEVE TRAIMAN