Flood insurance coverage
Skyrocketing flood insurance premiums have scuttled a few local real estate deals and have some property owners facing rate increases of several hundred percent as a 2012 federal law takes effect.
“We’ve had two deals fall apart because of it in just the last month or so,” said Jessi Jones, broker with Century 21 Full Service Realty in Marietta.
Jones said one buyer was looking at a home in Marietta and expected to pay $400 to $500 for the flood insurance required by the bank financing the mortgage. But the actual annual cost for the premium turned out to be $1,900.
“So that killed that situation,” Jones said.
Another sale in Marietta stopped cold for Realtor Traci Strahler Chichester, with Advantage Real Estate, when the buyer found out the flood insurance would be $3,400 a year, compared to the $500 paid by the previous owner.
“It fell through because the person didn’t want to pay the flood insurance, which you can’t blame them because the house never flooded,” she said.
Property values will drop as the higher insurance rates are taken into account and potential buyers for properties in the flood zone will be limited, said Dave Chichester, Traci’s husband and fellow Realtor.
“There are only two people that can buy it – people who just absolutely want that property and cash buyers,” he said.
The Biggert-Waters Flood Insurance Reform Act of 2012 both renewed the National Flood Insurance Program for five years and took steps to make it more fiscally stable by phasing out subsidies so that premiums reflect the actual risk of flooding. People who have had flood insurance on a primary residence since prior to 2012 will keep the subsidy, but non-primary residences, businesses and sites classified as severe repetitive loss properties are to see increases of 25 percent a year until they reach the actual risk.
“It’s a lot of money,” said John Walsh, senior vice president for corporate development for Promanco and Alliance Industries, which own a lot of property in downtown Marietta, right in the city’s sizable flood zone. “It’s money we’re going to have to spend that we could have used somewhere else.”
And if someone’s buying a new policy, renewing a lapsed one or has a policy enacted in 2012 or later, there’s nothing gradual about the increase.
Mitcham Group Apartments owner Wendy Myers saw the annual premium increase by 900 percent – from $300 to $3,000 – on a single-family home her company owns on Wooster Street and by about 838 percent – $640 to $6,000 – on the former Archer Auto site on Scammel Street.
“Once I get my other ones, I’m going to be looking at a $20,000 increase,” said Myers, whose company has holdings in Marietta, Belpre and Canton. “Obviously, we can’t put those kind of rents on our tenants.”
Instead, Myers will use money she planned to spend on painting, repairing floors and porches and other work to pay the increased premiums.
“I don’t want to reduce staff, but it keeps me from hiring other people” for those projects, she said.
Myers said flood insurance is required on some of her properties because they have been used as collateral or are still being paid off through a bank. Having the insurance does not necessarily provide a practical benefit, she said, noting most repairs wouldn’t even approach her $10,000 deductible thanks to steps taken like raising heating and cooling systems up so water would not reach them.
When the National Flood Insurance Program was enacted in 1968, existing homes and businesses were not required to rebuild to the new standards and many of them got subsidized rates that didn’t reflect the true flood risk, according to the Federal Emergency Management Agency website, www.fema.gov. But the costs of flooding have continued to increase, and changes were needed to keep the program sustainable.
Myers said she believes her increased premiums are going to pay for catastrophic damages experienced in other parts of the country, such as areas devastated by hurricanes.
“I think it’s really highway robbery,” she said.
There is a provision in the law that establishes a Reserve Fund, which causes an initial 5 percent increase in all premiums. However, a FEMA spokesman said the rest of the increases strictly reflect the flood risk of the specific properties.
Dave Chichester questions how accurate that risk is, citing property the couple bought on Buell Island recently. The previous insurance rate for a double-wide trailer there was $800, but the Chichesters dropped the policy after learning it would jump to $3,200 – despite the fact that that property and another were unaffected by one of the biggest floods in recent memory.
“In 2004, neither one of those properties flooded,” Dave Chichester said.
The new rate provision took effect Oct. 1, but property owners may not become aware of it until their rates are due for renewal. As they’ve learned more, constituents have turned to their Congressional representatives, seeking relief.
“I’ve heard from countless people throughout Eastern and Southeastern Ohio in regards to the rate shock they’ve experienced when it comes time to renew their flood insurance,” Congressman Bill Johnson, R-Ohio and a Marietta resident, said in a statement Thursday. “Some homeowners have seen their flood insurance premiums increase by as much as 1,000 percent. This is simply unacceptable.”
Johnson said action has already been taken in the House.
“Earlier this year, I voted for an amendment that shields certain flood insurance policyholders from excessive rate increases triggered by FEMA flood insurance rate map changes – an amendment that passed with bipartisan support,” he said. “However, the Senate has yet to act.”
Johnson said it’s important to keep the program strong, but it shouldn’t happen by “punishing homeowners.”
U.S. Sen. Sherrod Brown, D-Ohio, echoed those sentiments in a statement issued Thursday.
“While last year’s flood insurance reforms strengthened the National Flood Insurance Program to protect tax dollars, we must do more to ensure that Ohio homeowners are not hit with sudden increases in premiums,” he said.
The Associated Press reports a proposal introduced this month would apply increases only to homes that have been repeatedly flooded in recent years and “second homes.” Those hikes would be phased in 25 percent annually over a four-year period.
Last month, Mississippi sued the federal government to block the rate hikes, citing figures showing 41 percent of homeowners in mandatory flood insurance areas are considered of low to moderate income, according to the AP.