The next wave from Sandy is about to hit coastal homeowners. But unlike the hurricane of October 2012, it won’t displace people all at once. Instead, it has the potential to put people out of their homes over a longer period of time.
It is the surcharges and rate increases that will begin showing up on flood insurance policies starting Wednesday, April 1.
“A future storm brewing,” is how Tom Heist IV, president of Thomas H. Heist Insurance Agency in Ocean City, refers to the elevated premiums property owners will begin paying as a result of the Homeowners Flood Insurance Affordability Act of 2014, or HFIAA.
“I thought people would be screaming about this,” he said. “I think this is big news.”
No one holding a flood insurance policy is exempt from the changes that are coming. Starting this week, a $25 surcharge will be assessed to all primary homeowners and a $250 surcharge to all non-primary homeowners and commercial property owners.
Policy holders also will see an increase in the reserve fund assessment, which HFIAA is building in order to have a pool of money to deal with large catastrophic events, said Steven Ardito, a senior insurance specialist with the Federal Emergency Management Agency.
Additionally, rate increases due to inflation and the phasing out of subsidized premiums, a requirement of federal legislation, will mean policy holders will see jumps between 3 percent and 25 percent, Ardito said.
Heist said that translates to payments anywhere from 9 percent to 37 percent higher when the surcharges and increases are factored in. “People don’t pay rates,” he said. “They pay premiums.”
That also means anyone on a fixed income or who owns a house built prior to 1975 could eventually be priced out of their home by the flood insurance increases, he said.
“You could have people saying, ‘I can’t afford to be in this house anymore,’” Heist said.
Ardito estimates it could take as long as 10 years for policies to climb to their actuarial rate, depending upon the point at which the policy starts and the point it needs to reach.
Homes built in the last 40 years are already billed at their actuarial rate, he said.
Wait and see
Homes built before Dec. 31, 1974, are referred to as pre-FIRM, meaning they were constructed before the creation of FEMA’s Flood Insurance Rate Maps. Those properties, often built on some of the lowest ground at the shore, will likely see the biggest rate increases, the experts said.
Katie Ball, 29, of Ocean City, falls into that category. She purchased a Sandy-remediated split level in September 2013 and is taking a wait-and-see approach to what will eventually happen with her flood insurance policy.
“It’s something we have to deal with,” she said. “Some areas deal with really high taxes. We have to deal with flood insurance. That’s the price of island living.”
Ball said she currently pays $1,250 annually for flood insurance on her home, which was built in the early 1950s in one of Ocean City’s lowest-lying neighborhoods. She does not know what her renewal premium will be come September, she said, and although she has an elevation certificate, she does not know how far below base flood elevation the first floor of her home is.
Homes like hers could see premium increases of $600 to $700 per foot below base flood elevation, Heist estimated. “Every foot is dramatic,” he said. “Every foot is meaningful.”
“I’ll see what the flood insurance goes up to,” Ball said. “It’s something we have to live with here. I knew it was going to happen.”
She said she may eventually have the structure demolished and replaced with new construction built to current standards, which would put her in a lower-rate category.
How we got here
Although FEMA has held open houses in 13 coastal New Jersey counties to educate homeowners about the impending changes and has posted information on its Floodsmart.gov website, many clients seem to be unaware of the looming spike in premiums, Heist said. Most, he said, are removed from handling their flood policy payment because their mortgage company escrows for it.
“It’s been pretty quiet,” Ardito said. “Perhaps we’re not hearing much about it because a lot of people have already heard of or read about these increases and to them it is not news.”
He said flood insurance discussions that began with the Biggert-Waters Act of 2012 scared a lot of property owners with tales of premiums as high as $30,000. The HFIAA is a kinder, gentler version of Biggert-Waters, which would have implemented increases more quickly and eliminated grandfathering. HFIAA permits grandfathering, which allows homeowners with post-FIRM properties that were built in compliance with FEMA’s existing maps at the time of construction to retain their rating.
“They’re not going to be subjected to the same swings in increases,” Ardito said.
Contact Cindy Nevitt:
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