|
Every year, thousands of homeowners receive an unpleasant surprise from their insurance carriers – their flood insurance premiums are doubling or even tripling.
A letter explains the old premiums had been based on incorrect information and the new one reflects the corrected rate.
Many homeowners’ first thought is that the Federal Emergency Management Agency must have revised its floodplain maps, placing the home in a higher-risk flood zone.
That might seem a logical reason – and in fact it’s sometimes the case. But usually, it’s the wrong conclusion.
“Anytime someone in Sussex County tells me that their insurance rates just went up because the flood zone changed, I know that’s almost always not the case,” said Mike Powell, Department of Natural Resources and Environmental Control floodplain manager.
The Federal Emergency Management Agency (FEMA) last revised floodplain maps for Sussex County in January 2005. Agency representatives said those revisions made few substantive changes in eastern portions of the county. Most changes primarily updated the county’s maps to include streets in new subdivisions.
When data catches up with reality
Powell said during reviews of home-related information, banks, mortgage companies and insurance carriers often discover that some dwellings aren’t located where their records indicate.
“Most commonly the bank or insurance company hadn’t correctly determined, in the first place, which flood zone the building is in,” he said.
Powell said it’s a scenario that has affected flood insurance policies for years, but he’s now seeing it more often.
Since 1973 mortgage lenders have been required by law to physically check on whether a structure is within a floodplain or if a new structure is planned for construction within one.
Powell said homeowner applications to refinance a mortgage, apply for a home-equity loan or request a policy change, can trigger an institution to take another look at a home’s location.
He said banks frequently outsource the job of floodplain determinations, making it common for the job to be done by consultants and contractors who are working for a number of banks.
“There are a lot of companies out there that do nothing but check on whether properties are in floodplains. Nationally, hundreds or thousands of properties are checked every day,” Powell said.
It has sometimes taken years – decades in a few instances – for accurate information about a structure’s elevation, and location in a flood zone, to surface, he said.
Powell recalled a Lewes-area couple who had lived in their home for five years before a letter from their insurance carrier arrived informing them the company’s record of the home’s elevation, showing it was in a low-risk flood zone, had been incorrect.
The insurance company said the structure had always been in a higher-risk flood zone and because of this the annual premium would be increased from about $300 to a little more than $600.
“Typically, it at least doubles or triples. It’s a huge, huge issue for policy holders,” Powell said.
He said following FEMA’s 2005 map revisions, every bank in the country had to search its mortgage portfolios to make sure they identified homes that had not previously been in a floodplain but suddenly now were.
“Thousands and thousands of properties had to be rechecked for flood zones,” Powell said.
He said as a result, dozens of homeowners were told they were now in a floodplain.
The Federal Emergency Management Agency maps floodplains throughout the country. The information is used to rate an area’s risk of flood, ranging from low-to-moderate- to high-risk.
FEMA’s role and control
The agency also administers the National Flood Insurance Program (NFIP), which offers flood insurance to homeowners, renters and business owners.
The NFIP offers flood insurance discounts to communities adopting and enforcing measures that help reduce the consequences of flooding.
Powell said researching as far back as he could, he was able to confirm that FEMA hadn’t modified Sussex County’s maps since 1995.
When a FEMA map changes a home’s location from being outside a 100-year floodplain (an area defined as one where the risk of significant flooding is likely at least once in a 100-year period) to one within a 100-year floodplain, the changes can dramatically affect flood insurance costs.
Powell said although age-old paper maps show floodplains, they provide little detail about land features.
The lack of detail makes accuracy a problem, he said, especially when the maps are used to determine floodplain features in rural areas. Powell said the past decade has seen significant improvements in aerial photography and mapping technology, and new-generation maps make it easy to determine whether a structure is within a floodplain.
Still, new mapping technology is likely to result in more homeowners surprised to learn the high ground they thought they were on is much lower, and the cost to insure against flood much higher.
~
Doing without flood insurance is risky business business
Spring and summer 2008 will be remembered as seasons ruled by two elements of antiquity – fire and water.
Thousands of acres on the West Coast turned into cinders in California’s conflagration, and floodwaters inundated parts of seven Midwestern states – Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri and Wisconsin.
The cost of property damage caused by these events is still being assessed, but one thing is clear – floods throughout the country destroyed homes and businesses numbering in the tens of thousands.
“The more the environment changes the more you’re going to hear about flood risks,” said Melissa Anderson, a personal account executive with Williams Insurance Agency Inc., in Rehoboth Beach.
She said soil erosion is changing the topography near many homes that, 20 years ago, were in a preferred flood zone – an area at low risk for flooding.
Anderson is the agency’s go-to flood insurance pro.
She began learning about the complex and detail-loaded insurance more than a decade ago, in a market where everyone carries a margarita and flood insurance – Key West.
What is a flood?
“Ninety percent of agents don’t understand flood insurance. Florida is a place where knowledge of flooding is critical,” Anderson said.
In 2007, Williams Agency was one of three in the country to receive the National Flood Insurance Program’s (NFIP’s) agency of the year award.
She said many homeowners don’t realize that insurance companies define a flood as rising water.
It doesn’t matter where the water originates.
If a downpour causes a community’s fountain, pond or lake to overflow and the water enters nearby homes – it’s a flood.
Anderson said without a flood insurance policy, a homeowner would not recover property damages or losses. She said insurance industry statistics indicate property damage from or loss from flooding is three times more likely than from fire. Anderson said even high wind, which frequently accompanies flood conditions, is more likely to damage a home than fire.
In this area, ocean beachfront homeowners usually focus on the ocean as the potential source of floodwaters.
“But many of those homeowners don’t realize they’re more prone to flooding from the bay than they are the ocean,” Anderson said.
She said although the Coastal Barrier Resources Act of 1982 made development in certain areas ineligible for federal financial assistance, including flood insurance, people are still building homes in this and similarly designated areas. Anderson said many homes in areas such as Broadkill Beach and Indian Beach, south of Dewey Beach, are inappropriately designed and at higher risks of flooding.
She said homes built on pilings to elevate them high above the floodplain are not especially popular with beachfront home buyers.
But in many ways, a design that’s inappropriate for location can be costly.
Anderson said the owner of a newly constructed $2 million home in Bethany Beach was stunned to learn that insuring the property would cost $5,457 a year through the NFIP, even though the home had been built 12 feet above the floodplain. “Some homeowners want beautiful ground-level grand foyers and other entryway designs that are nearly flat and level with the beachfront view. They’re flood-prone,” she said.
Rates reflect national trend
Anderson said one reason flood insurance rates have been climbing is FEMA’s need to cover the rising number of flood-insurance claims, and the higher costs attached to those claims.
She said costs are being driven by catastrophic losses such as those caused by Hurricane Katrina and also by the cumulative losses from floods throughout the country. But she also said this spring’s Midwest flooding is likely to have little effect on the national insurance program’s bottom line.
“Many of those homeowners in the Midwest didn’t have flood insurance,” she said.
Homeowners without flood insurance policies in place before a disaster aren’t eligible to file claims or receive compensation for property losses through FEMA, Anderson said.
She said the National Flood Insurance Program no longer offers some of the rating discounts once available to homeowners living in communities that took measures to reduce flood risks. “They’re trying to find ways to get the money back,” Anderson said.
She said the national insurance program is also moving away from grandfathering policies – providing property insurance in areas where rebuilding after a loss has been restricted or prohibited.
“The NFIP is saying it’s too complicated. They want to write standard policies,” Anderson said.
High-risk insurance costly
In the 1960s Fair Access to Insurance Requirements (FAIR) was created to make insurance available in areas that had abnormally high exposure to risks over which homeowners have no control. Functioning as an insurance pool, FAIR sells property insurance to homeowners who are unable to get coverage in the voluntary market.
Those policies typically cost more than private insurance and sometimes offer less coverage, but they offer insurance in cases where otherwise none would be available.
Anderson doesn’t think much of the plan.
“FAIR is the worst insurance plan possible. I absolutely would not recommend a FAIR plan,” she said.
The plans are offered in about 30 states, including Delaware, and the District of Colombia.
In addition to overall higher costs, in some states FAIR plans don’t provide homeowners with liability protection, nor do they cover losses caused by water damage or theft, she said.
“They don’t provide coverage for all of the wonderful perils that come with owning a home,” Anderson said.
She said those insurers who are continuing to write homeowner policies covering storm-related damage now include a 5 percent deductible for damage caused by wind. Anderson said when deductibles are extremely high, many homeowners who sustain damage won’t file claims because out-of-pocket costs could be $10,000 to $20,000.
“You’d never file a claim for wind damage, and insurance carriers know it. That’s the mindset,” she said.
Is Lloyds the answer?
Anderson said insurance rates continue to spiral for coastal properties everywhere.
She said properties on barrier islands in New Jersey that are within two miles of the high-water mark are not covered by policies issued by standard insurance companies. “Even if you’re grandfathered in, if the company files a request with New Jersey or Delaware, they can drop you as long as they get the state’s approval,” she said.
Anderson said some insurance companies are using computer models to project losses caused by storms. She said insurers aren’t using computer models in the Cape Region, but they are used in Florida and, surprisingly, in New Jersey, just a few miles across the Delaware Bay.
“When they do use them, that’s when policyholders begin seeing 1 percent deductibles for damage caused by high winds and hurricanes,” she said.
But for the well heeled who want what they want, where they want it, when they want it, there’s always a company willing to insure property at high risk of damage by storm or flood.
“My motto is when there’s no hope left, go Lloyd’s,” Anderson said, referring to Lloyd’s of London Insurance Companies. She said Lloyds companies offer homeowner policies, full replacement cost policies and extended replacement cost policies.
“You can get close to what a standard company is offering with Lloyd’s of London versus a FAIR plan,” she said.
Anderson said Lloyd’s uses a named-storm deductible, which she said is better than the generic wind-event deductible.
“If it’s a named storm – Tropical Storm Melissa or Hurricane Melissa – then you incur a 1 percent or 2 percent named-storm deductible,” she said.
Anderson said Lloyd’s policies are double the cost of standard insurance policies but they’re worth it for many beachfront – or one house away from beachfront – homeowners who would otherwise face high deductibles.
Anderson said those who design and build homes and communities, the banks that finance them and the insurance carriers that cover them, could all learn more about flood risk.
“I’m a big advocate of flood education,” she said.
CAN YOU APPEAL?
Reversing new flood zone designation is possible
There is an appeals process that makes is possible for homeowners to request the Federal Emergency Management Agency’s reconsideration when property not previously within a risky flood zone is suddenly mapped into one.
• Property owners may submit a letter of map amendment, providing the agency with what they believe to be the correct elevation and location.
• If FEMA agrees with the documentation, the agency might revise its flood-risk assessment. But anyone appealing FEMA’s map revision should keep a few things in mind.
• The agency considers the mapping technology it uses as the best system available to make flood zone determinations. Any challenges to FEMA’s findings must be well supported by data.
• For property owners, obtaining that data usually means hiring a professional land surveyor at a cost of $500 or more, paid for by the homeowner, or providing a professional engineer’s or architect’s documentation of the structure’s elevation.
For complete information on flood risks, flood zone descriptions .and flood insurance, visit www.floodsmart.gov.
OUTREACH PROGRAM
Understanding flood risks, flood zones, and flood insurance can be daunting giving rise to questions from homeowners best answered by experts.
The Community Outreach for Flood Awareness, 6-8 p.m., Wednesday, Aug. 20, at the Rehoboth Beach Convention Center, will do just that – provide information.
The Williams Agency Inc., a Rehoboth Beach-based insurance agent and broker, is sponsoring the free program.
“We think the information homeowners will receive is very important. We know they have a lot of questions about flood insurance. It’s unlikely there will be questions that someone on this panel wouldn’t be able to answer,” said Melissa Anderson, a personal account manager with the Williams Agency.
The panel will include guest speakers Judy Marvel and Joe Zagone, Federal Emergency Management Agency; Greg Williams, Department of Natural Resources and Environmental Control; Annette Winston, Selective Insurance; and representatives of the Williams Agency.
The program is free, but seating is limited. Reservations are requested. Insurance products will not be sold at the event. To reserve seats, call Melissa Anderson at the Williams Agency, 302-227-2501.
|
