Flood insurance is getting expensive, but can you afford to be without it?


ORLANDO — After Hurricane Ike’s storm surge virtually wiped out all the beachfront houses east and west of Galveston, Texas, in 2008, FEMA came to the rescue and bought what was left of the first and second houses along the beachfront, and for pre-Ike values.

FILE - In this Sept. 14, 2008 file photo, a beachfront home stands among the debris in Gilchrist, Texas on the coast of the Gulf of Mexico after Hurricane Ike hit the area. (AP Photo/Pool, Smiley N. File Pool)

FILE - In this Sept. 14, 2008 file photo, a beachfront home stands among the debris in Gilchrist, Texas on the coast of the Gulf of Mexico after Hurricane Ike hit the area. (AP Photo/Pool, Smiley N. File Pool)

It was a nice bit of government welfare, but don’t count on FEMA to come to the rescue if your house gets flooded. That’s what the National Flood Insurance Program is for.

Sadly, not enough homeowners are enrolled in the program.

“In an average year, the program breaks even,” said Bryan Koon, the head of Florida’s Emergency Management Division. In bad years, such as when a Superstorm Sandy or Hurricane Katrina happens, the NFIP has to pay out much more than it takes in, and, because premiums have been (intentionally) artificially low for so long, it has no cash reserve. It makes up the shortfall by borrowing from the U.S. Treasury.

“The NFIP owes $23 billion to the treasury,” Koon said at the National Hurricane Conference here. “There is no clear path for the NFIP to pay off its debt.”

To fix this issue, when the program came up for Congressional renewal in 2012, the Biggert-Waters Act was passed, mandating that flood-insurance rates be “actuarially sound” and calling for a 25 percent increase in premiums each year until they reach a nonsubsidized level.

Worse for the real estate market, when the property is sold, the full flood insurance rate would be paid by the buyer right off the bat.

You all remember this, right? At least those of you who lived in Florida at the time.

“That had a chilling effect in real estate markets in Florida,” Koon said. “The resale market went to zero for a little bit in some places. Where the seller was paying $2,000 a year, the buyer would have to pay three, four, five times that, and they would walk away from the purchase. The real estate market collapsed for those properties.”

In 2014, Congress softened the impact to an 18 percent premium increase so as to not kill the housing market. And it kicked the can down the road on other provisions that drew the ire of homeowners and the real estate industry.

Still, a lot of people dropped flood insurance, even though it was mandated for mortgaged properties. Florida now has 1,845,000 properties with NFIP flood insurance, about 25 percent of the national total, but a 10 percent drop in two years.

“At same time, the state has grown by 1.5 million people,” Koon said. “That is not good. We are susceptible to flooding, almost anywhere in the state.”

One reason for the decrease is that as premiums rise, fewer people see insurance as worth the price. “People have a short-term memory of floods and tend to cancel, where they don’t cancel other forms of insurance.”

Also, there have been more all-cash sales, and if there is no mortgage, flood insurance is optional.

If you don’t have insurance and your house floods, you can get assistance from the government, Koon said. But in Florida, that average payout is $4,000, while folks with flood insurance get reimbursed an average of $51,000.

The dole “is not enough to make you whole,” said Koon.

Uninsured properties are a risk to society and not just the owner, said Koon. “The lack of flood insurance slows down the economic recovery of a flooded community,” he emphasized. It results in lower property tax collections. Communities with recently flooded properties in Texas lost $1.5 billion in taxable value, he said. “Communities will not be able to collect taxes to rebuild schools and infrastructure to move ahead.”

Some communities are proactive. Most counties in Florida, including Manatee, Sarasota and Charlotte, participate in the NFIP’s Community Rating System. These local governments follow a checklist of measures that can be taken to mitigate the risk from flooding, including requiring the elevation of new houses above  expected flood heights. You can see the effect of this with the tall houses along the waterfront. Residents in CRS communities get significant discounts on their flood premiums.

As for the argument that flood insurance benefits mostly those who live near water, and those with expensive homes, Koon put those myths to rest: (a) The policy limit on flood insurance is $250,000, which is not going to fix or replace a flooded mansion; and (b) floods can happen in almost any Florida community.

Koon urged emergency managers to learn more about flooding and flood insurance, get engaged with elected officials to encourage reauthorization of the NFIP in 2017, prompt their counties to take full advantage of the CRS discounts, encourage the expansion of the private market for flood insurance, and talk about the issue to anyone who will listen.

More information is available at FloridaDisaster.org.

One last thing. Flood insurance does not take effect for 30 days after application. Don’t try to get it when a hurricane is approaching or it starts raining really hard.

And if you are caught without flood insurance and an “event” ruins your drywall and furniture, and leaves a foot of mud on your floor, don’t go crying to FEMA.

Harold Bubil

Recipient of the 2015 Bob Graham Architectural Awareness Award from the American Institute of Architects/Florida-Caribbean, Harold Bubil is real estate editor of the Herald-Tribune Media Group. Born in Newport, R.I., his family moved to Sarasota in 1958. Harold graduated from Sarasota High School in 1970 and the University of Florida in 1974 with a degree in journalism. For the Herald-Tribune, he writes and edits stories about residential real estate, architecture, green building and local development history. He also is a photographer and public speaker. Contact him via email, or at (941) 361-4805.
Last modified: March 27, 2016
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