- Published on Wednesday, 23 January 2013 22:11
- Written by Super User
By WILLARD KILLOUGH III
NEW HANOVER CTY - In addition to the issue of rising homeowner's insurance rates, National Flood Insurance Program rates may rise for some homeowners.
President Obama signed into law the Surface Transportation Bill (H.R. 4348) on July 6th, 2012. In that bill was the re-authorization of the National Flood Insurance Program (NFIP) also known as the Biggert-Waters Flood Insurance Reform Act of 2012.
According to Spencer Rogers of the North Carolina Sea Grant, "After approval by Congress and the President’s signature, the Biggert-Waters Flood Insurance Reform Act took effect on July 1, 2012. The Act make makes numerous changes in the National Flood Insurance Program (NFIP) that will increase the cost of insurance to offset the high losses incurred by the program, primarily due to Hurricane Katrina. Many of the increases will be relatively moderate or affect specific high-risk groups
such as repetitive loss properties. However, the Act also removes two longstanding “grandfather” clauses that are likely to be very expensive for property owners in or even near the respective 100-year floodplain shown on flood maps."
Rogers explained in a December 2012 memo, "The first grandfather clause applied to buildings that were constructed before Dec. 31, 1974, or the initial Flood Insurance Rate Map (FIRM) for each local community, whichever is later. The buildings are called pre-FIRM. Since NFIP was developed in the 1970s, various groups recognized that in order to get communities to join the program and adopt the local flood ordinances, the program must offer subsidized or lower than actuarial rates for the existing, noncompliant buildings. The NFIP offered flood insurance for all buildings in the community, at subsidized rates, if they were willing to adopt higher flood standards on new construction after the maps were implemented. There have been regular calls for removing the subsidized rates since they were implemented."
Rogers explained, "The Reform Act leaves the subsidized rates in place for primary residences except for houses: 1) newly purchased; 2) not previously insured; 3) with temporary policy lapses; or 4) substantially damaged or with improvements more than a cumulative 30% of the fair market value. The Act deletes all subsidies for second homes, rental houses, businesses and severe repetitive loss properties. The present subsidized rates will be increased 25% each year until the actuarial rates are reached."
According to Rogers, as an example of the premium increases, coverage for a $100,000 building and $40,000 contents now has an approximate annual pre-FIRM premium in the AE-zone of $1,256. If the older building can meet the present floor-elevation requirement, the rate increases 16%. In the case that the building is at least 1 foot below flood elevation (BFE), the present rate triples or more. In the VE-zone, the present $2,221 premium will increase to $7,566 (241% increase) or more if the building is 3 feet or more below BFE on the latest maps.
Under the Reform Act, annual premiums for those policies previously only slightly out of compliance could see increases of more than 200 percent or $2,000 for a $100,000 structure. Rogers explained, "For higher coverage or farther from compliance, some annual premiums may rise by tens of thousands dollars annually."
According to Rogers, in the past premiums could be calculated using the latest flood map requirements or the map in place at the time of construction, whichever was in the owner’s advantage. Once rated by zone and elevation, those map conditions could be used to calculate future premiums, even if the zone or base flood elevation was changed in a later map. The Reform Act removes the grandfather provisions for buildings originally constructed in full compliance with the NFIP at the time of construction. All buildings will now be rated using the latest maps. When the maps change, the rate increases will be phased in at each policy renewal, over the next 5 years (20% per year).
Rogers explained, "If constructed to the minimum BFE in the AE-zone, the $100,000 building with $40,000 contents, would have a premium of $1,458. If new flood maps raised the elevation 1 foot, the AE-zone premium would be $3,844. In the VEzone it would increase from $3,478 to $4,670. A 3-foot map increase in the VE-zone would raise the premium to $7,566. For the higher coverage building example a 3-foot map increase in the VE premium adds over $10,000 per year."
Rogers explained the cost of a map change becomes even more dramatic when the new maps move a building into a higher-risk zone.
He explained for federally guaranteed mortgages the insurance is required no matter what the cost. Therefore, any owner with a federally backed mortgage will have little choice but to pay the new NFIP rates.
He explained, "For many years, Congress had limited any NFIP rate increase to less than 10%. That limit has been
increased to 20%. NFIP rules and policy have historically required that the Flood Insurance Rate Maps and the insurance rates were based on present rather than future conditions. The Reform Act establishes a Technical Mapping Advisory Council, which is
given one year to develop recommendations for future condition mapping, including sea-level rise and future development. The latter refers to stormwater runoff increases due to future development, which can be an issue in riverine flood modeling. Both could potentially result in significant increases in the base flood elevations. The Council could choose to add either to future flood mapping methods or maintain
the present policy preventing any impact on insurance premiums."
To view more information on Rogers report visit www. ncseagrant.org
Many properties in Carolina Beach are located in flood plain areas.
For example, areas along the oceanfront are typically located in VE zones while those located farther inland are located in AE zones.
For example, the Carolina Beach Town Hall is not located in a flood zone while Carolina Beach Elementary School is located in an AE zone.
To view a map of these zones, visit the Town of Carolina Beach website at www. carolinabeach.org under the Planning Department section. Or, visit www.FloodSmart.gov