Positive legislative approvals in Congress and the Florida Legislature offer some relief to thousands of home owners and business people affected by the Biggert-Waters massive flood insurance premium increases.
– President Obama signed the “Homeowner Flood Insurance Affordability Act of 2014” on March 21 (H.R. 3370). It was passed by the U.S. House of Representatives March 4 and by the U.S. Senate March 13.
– Key features of the bill: H.R. 3370 repeals certain sections of BW12: Repeals section 207 of BW12 which permanently restores grandfathering; Repeals the home sale trigger & lapsed policy; Limits annual rate increase to 18%; Retroactive: Refunds policyholders who purchased pre-FIRM homes after BW12 (7/6/12) and were subsequently charge higher rates; Increases funding for the FEMA Affordability Study from $750,000 to $3 million; Provides long term relief by adding an annual flood insurance surcharge of $25 fee for residential and $250 fee for commercial & secondary properties (the surcharge will be used for the NFIP reserve fund and will ensure funds are available for meeting future obligations).
– H.R.3370 does not affect commercial properties, secondary properties, or severe loss properties whose rates can go up 25% a year. However, rate increases triggered by a sale would be delayed for commercial and secondary properties.
– Meanwhile, the Florida Legislature has moved swiftly this session on advancing flood insurance legislation. The Senate Bill sponsored by Senator Jeff Brandes (R-St. Petersburg) is now on the calendar for a Senate vote. HB 581 by Rep. Larry Ahern (R-Seminole) is in the House Insurance and Banking Committee where several Committee Hearings remain. The proposed bills would give homeowners more options to purchase affordable flood insurance policies by promoting the expansion of the private flood insurance market in Florida. They also would allow coverage for additional living expenses or personal property or contents to be optional. Under the text of the proposed bills, private insurers would be allowed to offer flood insurance coverage with a policy limit in an agreed-upon amount.
Positive Holehouse Commentary
Jake Holehouse of St. Petersburg-based Holehouse Insurance, one of the first to see the debacle of Biggert-Waters (see Paradise News, October 2013 issue), offered these opinions.
For Pre–FIRM (pre-1974) construction, the bill phases in the new Biggert-Waters based rates by having premium increases at a 15% per year rate increase for older pre-FIRM properties until they hit their actuarially sound rate or a private market rate becomes a better rate. Our opinion is that this is actually better than a delay that destroys the confidence of the consumer, real estate professional and insurance professional as they are not aware of the future and it is difficult to advise a client when we don’t understand the long-term ramification. However, by phasing in the rate increase it allows time for policyholders to prepare for rate increases and gives the private market time to react to the marketplace.
The phase-in rate does include a new buyer so it does not just preserve the current homeowner but it gives the current flood rate to a new policy holder as well. In terms of rates, Homeowners Choice Insurance Company has come out with a private market rate that is ultra-competitive with FEMA rates for apples to apples coverage. In addition, we will see additional private rates become competitive with more Lloyds of London availability as well as availability from other major insurance marketplaces.
Right now, we are still actively writing with the private market that creates immediate relief for a homeowner. If FEMA does make changes, we will go back to FEMA to rewrite the policy. Our opinion is that the private market is here right now and actively allowing us to write new business policies. This allows for homes closings to take place now, and in the worst case scenario a $4,065 flood rate is not the end of the world for most of Pinellas and Hillsborough Counties.
The other major section of this bill that affects pre-FIRM rates is the FEMA 50% rule that states that a below-elevation property cannot be improved more than 50% of its value. This directly affects a homeowner’s ability to remodel a house. Under the Biggert-Waters bill it states that this rule changes to be an improvement value of 30% of the structure over the lifetime of the structure. The challenge is that this is related to the dwelling value — not the property’s overall value — so on many older waterfront homes, the structure value might only be $150,000, which means a homeowner cannot do more than a $45,000 remodel. The new act amends this to go back to the 50% rule.
For Post-FIRM (1974 to present construction), H.R. 3370 states that grandfathering for being built in compliance is preserved forever. This is an enormous impact to market confidence. Since the FEMA program started in 1968 they have allowed grandfathering for being built-in compliance. This means that if a house was built in 2001 to the 1983 flood map and in 2003 the flood map changed the base flood elevation or flood zone, we can rate the house back to the 1983 flood map.
Under Biggert-Waters this was changed to say that at any time FEMA can modify the flood maps and enforce the new premium over a five-year period of time. For example, we have a homeowner currently paying $650 for flood insurance and under a zone change the new FEMA rate would be over $12,000 even though the house was built in 2001 and built in compliance to the FEMA maps. This bill reverses Biggert-Waters to allow grandfathering to continue for the lifetime of the property. A couple of example areas this affects in Pinellas County include Tierra Verde, Pasadena Yacht and Country Club, Placido Bayou, Feather Sound, Bayway Isles and many other barrier island flood maps.
The bill does not affect commercial properties. However, we are having great success placing commercial businesses in the private market. The difference between a commercial risk and a homeowner’s type risk is that commercial can at least adjust and still make a profit. For example a hotel can charge a higher room rate and make up the difference for the flood insurance. However, a single-family house does not have that same ability. For realtors, it reduces current rates and drives confidence into the marketplace. This is better than a delay as we now know the long-term ramifications of the bill.
Torgersen: Another View
Tom Torgersen, President of AIA Insurance Services in St. Pete Beach, has been in the industry for 32 years, in own agency 13 years and has covered residential insurance the past five years.
“My opinion of this act,” he told Paradise News, “is that there are really no clear ‘winners.’ Some folks will get significant relief initially, but there remains a ‘glide path’ to full actuarial rates for every category of Pre-FIRM properties.
“Winners include folks who purchased new policies on Pre-FIRM properties after July 6, 2012. These folks had Element Selection will have their rates increased to the Full Actuarial level on the first renewal after October 1, 2013. The Act above provides for refunds to them with the expected refund the difference between the Full Actuarial rate and the subsidized rate. Currently, we do not have an expected refund date for any of these policies. Also on the plus side are those with new policies on Pre-FIRM properties in place after last October 1. These folks will pay the subsidized rate versus the Full Actuarial rate. Again, timing is an issue as someone needing flood insurance today would be quoted the Full Actuarial Rate.
“Not much change is seen for owners of primary residential Pre-FIRM properties. They will receive a minimum 5% to 18% annual increase PLUS a 5% ‘Catastrophic Reserve Fund’ fee. These folks will see, on average, 10% to 23% increases annually until they reach the full actuarial rate. Non-primary and non-residential Pre-FIRM property owners will receive, on average, 25% annual increases until the full actuarial rates are reached.
“Overall, it appears that Full Actuarial Rates are coming. It seems that everyone with a Pre-Firm property will now be in the same situation with annual increases until Full Actuarial Rates are reached.
“Alternatives in our market now include Lloyd’s of London, which is a Surplus Lines carrier. Lloyd’s will write both personal and commercial properties. Their rates are very competitive when compared to the Full Actuarial Rates but not so much when compared to the subsidized rates today. That will change each year as the subsidized rates increase. Another alternative is Homeowners Choice Insurance. They will write residential properties only in selected areas. HCI is an ‘admitted’ carrier in Florida and does require additional underwriting prior to accepting the risk. Their rates for Pre-FIRM owner-occupied residential properties are very competitive.”
Significant Condo Savings
While condominium residential buildings aren’t directly affected by the new flood insurance relief bill except for the new 5% surcharge on all premiums, a number of Tampa Bay area condo associations have seen their insurance bills rolled back significantly by convincing FEMA its flood maps are wrong. The odds for condo associations are very good, as FEMA confirmed it gets about 30,000 requests a year nationwide for map revisions and approves about 90 percent.
Consultants like Boynton Beach-based Floodzone Revisions and Floodzone Correction in West Palm Beach have successfully assisted some two dozen condo associations in the Pinellas and Hillsborough Counties in reducing their premiums.
Ken Morris, founder and president of Floodzone Revisions, said, “We currently have a 100% success rate with regards to LOMR (Letter Of Map Revision). Since 2009 our firm has successfully represented about two dozen commercial properties in seven Florida counties, including 13 condominium associations. In Tampa Bay, these include Sandpearl Condominium, Clearwater Beach; Ashford Green, Tampa; Land’s End, Treasure Island; and Bella Costa, Dunedin.”
He explained the situation and remediation process. A LOMR is a detailed, technical application that is performed and submitted to the local Floodplain Administrator (FPA) and FEMA for review and approval. A LOMR changes one or more flood zones, Base Flood Elevations (BFEs), or Wave Crest Elevations (WCEs) on FEMA-issued Flood Insurance Rate Maps (FIRMs). LOMRs change “V” flood zones to “A” or “X” flood zones, “A” flood zones to “X” flood zones, or reduce BFEs or WCEs. These changes show reduced risks for flood damage and yield corresponding reductions in flood insurance premiums.
Unfortunately, many effective FIRMs in existence today that determine flood insurance rates contain flood zones that are erroneous or antiquated. Most Florida FIRMs were originally created using large-scale, county-wide data that did not incorporate “site-specific” data into the modeling and mapping of the corresponding flood zones. Additionally, many Florida FIRMs are over 10 years old and some are more than 20. The flood zones of these FIRMs are no longer accurate due to new construction and changes in land-use, shoreline location and topography that have occurred since the FIRMs became effective. A LOMR revises the effective FIRM, changing flood zones and/or BFEs or WCEs, based on more accurate, site-specific data used in the modeling and mapping procedures. When a property is located within an inaccurate FIRM, a LOMR can be performed at least 75% of the time.
At Land’s End, a 177-unit Gulf-front complex in Treasure Island, Cal Brummett, manager for association management firm Associa Gulf Coast, noted the complex was originally in the VE zone, considered the most hazardous because it generally is beachfront. “When our annual flood insurance premium was close to $100,000,” he said, “we hired Floodzone Revision to file the appeal. They successfully demonstrated to FEMA that the growth of dunes and vegetation had created a natural barrier against waves. Last December, FEMA moved Land’s End to the AE zone, a lower-risk classification. As a result, our premium dropped to about $9,000, and we estimate savings of about $800,000 over the next eight years alone.”
At 162-unit Sunset Vistas, another Treasure Island waterfront complex, built in 2006, General Manager George Hoch told Paradise News, “When our flood insurance premiums hit about $400,000 in 2011, we knew we had to do something. FEMA flood maps showed that the complex had a high risk of wave-related damage that resulted in a VE-zoned high premium. We had originally looked at possible mitigation savings, but the angle of our beach made a difference. To get the flood map changed, we turned to Floodzone Correction, with agent Stephen Gill and President Dan Freudenthal doing a great job for us that resulted in a change to AE zone with a steep premium drop to about $18,000 in 2013. Our only out-of-pocket cost was about $10,000 for a special topographical map, with our consultant’s additional engineering observations very helpful. Their fee was 50% of our first year savings – about $190,000 of the $380,000 total. We will absolutely save a lot of money going forward.”
Stay tuned with Paradise News for continuing updates on the flood insurance situation and the impact on Pinellas County homes, condos and businesses.
Story By Steve Traiman
Date: March 24, 2014
[Editor’s Note: Special thanks to Jake Holehouse, Tom Torgerson, Ken Morris, Cal Brummett and George Hoch for their perceptive comments and assistance.]
[Steve Traiman is President of Creative Copy by Steve Traiman in St. Pete Beach, offering freelance business writing services. He can be reached via email at straiman@mindspring.com.]