Flood Insurance Changes

[Fore Right]

I live on James Island in Charleston and based on my purchase date (February 2013) I am getting absolutely destroyed on the new rate increases. My current USAA policy is $1476 a year and runs out on February 19. New quote is for roughly $18,000 a year. Anyone else experiencing this? Exhausting all options including meeting with an attorney to see if I have any options. Foreclosure seems likely unless the government makes changes to this. This will devastate coastal real estate if not changed.

 

[JamesSokolove]

I recall reading about these increases well before February of 2013

 

[scooter84]

Can you explain your situation a little further? That sounds scary and ridiculous. We have some coastal property and haven't heard of a big increase... Our insurance renews in July...

 

[Fore Right]

Law was passed in July 2012 and went into place in October 2013. Nobody down here knew the extent of the changes that were coming. Hindsight is 20/20 but a little heads up from our buyer's agent, mortgage company, or insurance provider would have been helpful.

 

[Fore Right]

Can you explain your situation a little further? That sounds scary and ridiculous. We have some coastal property and haven't heard of a big increase... Our insurance renews in July...

I would check with your provider but it all depends on when your house was built, purchased, elevation level, and flood zone. Our house is worth 200k and is about 1300 sq. feet. It was built in the mid 60's. Essentially rates can no longer be assumed/grandfathered in so the full rate or close to it will be applied at your next renewal. Check with your carrier.

 

[ImTheCaptain]

$18k sounds about right for a coastal property. The new flood insurance rates more accurately reflect the risk to the government (and taxpayer). There isn't a whole lot you can do unless you're able to find flood insurance underwritten by Lloyds or some other non-FEMA carrier, b/c the US government is the only one in the business. A lot of people are getting hammered right now, and property values will certainly be changing.

That said, unfortunately, if you bought in February, you can't blame your real estate/mortgage guy/insurance guy for a lack of foresight because we (I work in insurance) didn't know about it until about October of 2013* (no joke, even the people at FEMA took over a year just to interpret the new laws/regs/rates).

I'd be happy to answer any questions as I'm able.

*correction in timeline, everyone got fucked because it was retroactive to July 2012.

 

[scooter84]

How does 18k a year make sense for a 200k property? Assuming some of that value is in the land, you are probably looking at 100k - 150k in building value, at most. And the building has been there since the 60s, presumably without being destroyed by a flood. How does that level of risk equate to 18k per year in premiums...?

 

[ImTheCaptain]

well, you have to remember we're dealing with the laws of large numbers, not rating specific houses for their specific risk. In fact, some people would get payments from a policy after a flood and rebuild 3, 4, or 5 times in the same spot, with no (or little) change in rates. You can see how that screws everyone.

the flood insurance program is run by the federal government, and as such is extremely reactionary and sometimes outright incompetent. Prime evidence is the recent change. The rates certainly needed to change, because the flood program is straight up broke, going all the way back to Katrina. People (unfortunately like you) insuring homes in high risk and super high risk areas were paying subsidized (by taxpayers) rates, meaning no one's ever actually seen the true cost of insurance. The other problem was with homes built before the Army Corp created the flood maps (and the flood program existed). All those homes (built before the mid-70s in most cases) were rated differently, typically MUCH lower than if they had a newly-constructed home, thanks to grandfathering rules. Another fun rule said that 2nd homes and rental properties were given cheaper rates than primary homes (for some reason?).

I think most of these rules were meant to keep people in their homes and to promote development of otherwise risky areas. As with most federal programs, it's now fucked and we all have to play (pay) catch-up.

You made an excellent point about coastal property values (and property values for homes along rivers and in other flood basins). It's a looming problem that the government didn't seem to consider. Or if they did, they decided that the change had to happen and the pain was going to be there anyway, so let's go cold-turkey. As I said before, it took about 8-9 months to interpret only about 60% of the new law (as of Sept/Oct 2013), so there will probably be more updates as we go.

I know real estate lobby groups are on it and the senate has already been holding hearings, so things will probably change again. In the meantime, you're going to be out of luck. Coastal regions are difficult but I would recommend you investigate flood mitigation updates to your home, if any are possible. Depending on the construction and location, you may be able to re-qualify for prefered rates instead of the standard rates, though I'm not as familiar with coastal flood rating as inland.

 

[94Deac]

When you consider how much real estate damage in the US has been because people live in high-risk areas which are susceptible to hurricanes and/or water damage, be it storm surge or flood plain, it's a wonder it's a wonder the premiums aren't higher. Hell, I plan on retiring to a certain small island in 20 or so years and I'm not going to cry a tear if coastal development grinds to a halt.

 

[ImTheCaptain]

help for Fore Right - congress threw in a line in the new budget that prevents FEMA from implementing the new rating structure for flood insurance.

 

[Baconwfu]

My fiance's best friend and her husband live near the Citadel and their flood insurance jumped like $500-$600 a month. (which sounded like it about quadrupled. Definitely didn't increase like yours did, but they definitely saw a huge jump in the last year).
Their first floor is a solid 4 or 5 feet above ground level too

 

[BobStackFan4Life]

Congress was responding in 2012 to financial shortfalls in the insurance fund, which is administered by the Federal Emergency Management Agency.

The program began in 1968, after many private-sector insurers viewed flood insurance as too risky. It permits homeowners to pay just 40 to 45 percent of their full insurance cost, with taxpayers covering the rest.

In addition, taxpayers pick up the tab when natural disasters hit particular regions. Hurricane Sandy’s cost was estimated at $50 billion, a figure second only to Hurricane Katrina’s $128 billion in damage in inflation-adjusted dollars.

Fiscally conservative groups cite a Congressional Budget Office analysis that projects delaying the rate hikes would cost $900 million over five years and cause the program to lose $2.1 billion over a decade.

R.J. Lehmann, a senior fellow at the R Street Institute, a free-market think tank, said the government should not be subsidizing homeowners’ decisions to move into wetlands and other environmentally sensitive areas: “Homeowners should be paying what the risk bears. That is one of the bases of insurance.”

http://www.bostonglobe.com/news/nation/2014/01/19/massachusetts-lawmakers-seek-boost-taxpayer-subsidies-for-coastal-flood-insurance/UpPekn4O8DBJq8ZWvPXNNL/story.html
I think I tend to agree with the conservatives on this one. And if you think there might be something to climate change, the risk is only going to go up for those living in these areas.

 

[BobStackFan4Life]

Then again, it sucks someone should have to go from $1,500 to $18,000 on a house that's worth $200,000. That's ridiculous.

 

[scooter84]

I'm being told the huge increases would only affect our property if we sell it. Right now we expect our flood insurance to go up about 25% when we renew this summer. That is bad but we can handle that. It might got up 8-10 fold if the law stays in effect and we sell- thus rendering the property essentially un-sellable. Does that make sense?

The building has been standing since the 1940s so in 75 years no one has had to pay a catastrophic flood damage claim on it...

 

[tbird]

help for Fore Right - congress threw in a line in the new budget that prevents FEMA from implementing the new rating structure for flood insurance.

Believe it passed the Senate is now before the House. If passed, will put a four year moratorium on any change. My wife has been a Realtor, East Cooper for 25 years. Many feel your pain seeing many examples with the same huge premium increases. I am on the Isle of Palms now and there is a huge amount of inventory on the market. One problem here is, at the urging of the politicians the Feds came and recently re-drew the lines expanding the flood insurance pool. Charleston has not had a major flood event since Hugo in '89...NC had major hits by Hurricane's Floyd and Fran in the 90's but due to a sympathetic insurance commission, has kept the lid on rates. I understand things are about to change on the NC coast though. In SC for too many years the state legislature has been populated with many who were involved in the insurance business. Like letting the Fox guarding the hen house...