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Pinellas County Property Appraiser Pam Dubov tells a crowd in the Digitorium at St. Petersburg College’s Seminole campus Sept. 25 that rising flood insurance costs could have a drastic effect on property values and the real estate market.
SEMINOLE – It was a packed house at the Digitorium on St. Petersburg College’s Seminole campus Wednesday night, as area experts talked about the effect of changing flood insurance rules.
Elected officials, insurance and real estate agents, as well as concerned citizens attended, all wanting more information on Biggert-Waters Flood Insurance Act of 2012.
People who live along Pinellas County’s beaches, lakefronts, bays and other waterways, as well as owners of properties in low-lying inland areas are facing a nemesis as scary as any natural disaster. Changes in federal law are forcing flood insurance policy rates to spiral out of control. In this time of recovery after a devastating recession, many are worried that this manmade disaster will create a backward slide for property values, the real estate market and tourism industry. Foreclosures could increase as people become unable to pay their mortgage due to high flood insurance rates.
Robin Sollie, president of the Tampa Bay Beaches Chamber of Commerce introduced the panel for the Sept. 25 program, including event moderator Ron Holehouse with Holehouse Insurance in St. Petersburg. Panelists were Patty Templeton-Jones from Wright Flood of St. Petersburg, Tim Fellabaum from Banker’s Insurance in St. Petersburg, Jacob Holehouse from Holehouse Insurance, Doug Swain from RE/MAX in St. Pete Beach and Pinellas County Property Appraiser Pam Dubov.
Fellabaum started the presentation with a brief explanation of Biggert-Waters, aka BW-12. He said passage of the act by Congress in 2012 was a “really important thing” because it continued the National Flood Insurance Program for five more years. In previous years, there had been “starts and stops” in NFIP, which caused a problem for policy holders and those needing flood insurance to satisfy mortgage requirements on a new home.
BW-12 affects all the major components of the FEMA administered NFIP, including insurance rates, flood maps, grant programs and flood plain management plans.
The purpose was to make the program, which is deeply in debt, financially stable, Fellabaum said.
NFIP has about 5.5 million flood insurance policies in the United States. More than 2 million, or 37 percent, of those policies are in Florida. The second highest state is Texas with 600,000 policies.
Since NFIP’s inception in 1968, premiums were able to keep pace with the cost of claims.
“In 2005, with Hurricane Katrina, everything changed,” Fellabaum said.
Cost of claims was $16 billion. In 2008, Hurricane Ike added $2.6 billion. Tropical Storm Debby cost $41 million in claims. Then in 2012, super-storm Sandy tacked on $7 billion.
In 2012, NFIP collected $3.5 million in premiums – not nearly enough to cover the costs of Sandy or put toward paying down the debt. Fellabaum said some are concerned that if a major storm hit this year, Congress might deny NFIP’s request for additional funding.
“NFIP doesn’t collect enough to pay for its losses,” Templeton-Jones said.
She said prior to Katrina, NFIP had been forced to borrow money from the federal government to cover claims and had always paid it back with interest. Now, the “debt is too high to retire,” Templeton-Jones said.
Everyone agrees change is needed to sustain the program.
When BW-12 first passed, everyone thought five years would give time to work on needed changes, she said. Now that the second phase of the Act is about to take place, Oct. 1, people are finding out that “affordability (of flood insurance) is a huge, huge issue.”
She said an affordability study ordered by Congress had not been completed. It was recently discovered that there is not enough funding to get it done. She said many are asking that implementation of the changes be halted until the study can be done.
“This is not a Florida-only problem,” Templeton-Jones said, as she urged the audience members to “reach out to legislators nationwide.”
Pinellas County has more subsidized flood insurance policies than any county in the state with more than 50,000 or 35 percent of all NFIP polices. Dubov, aka the grim reaper, as she said some are calling her because she is relaying so much bad news, explained that the premium price for flood insurance could have a devastating impact on the real estate market.
She said countywide there are homes people have lived in for a “very long time,” who have paid off their mortgage and have no flood insurance.
“They are fine today. They won’t have a rate increase,” she said. “But if they sell, they’ll need to find a cash buyer or someone who can pay the full actuarial premium based on risk.”
Many in the audience wanted to know how they find out the risk of their property. They best advice from the panel was to invest in an elevation certificate, which will be required to acquire or renew a flood insurance policy.
Ron Holehouse said an elevation certificate costs around $150 to $200, upwards to $400 currently, but cautioned he had heard talk that the price could be going up due to increased demand.
A number of new property owners are being caught in a scenario that Templeton-Jones said no one anticipated. BW-12 was signed into law July 6, 2012. Every flood insurance policy written since that date is considered new, and thus will be billed at actual-risk rates beginning Oct. 1.
Fellabaum said there were 1,400 businesses and 5,200 homes purchased after July 6, 2012 in Pinellas.
“They didn’t know,” he said.
Dubov said she had heard many scary stories about rate hikes. She said an insurance agent at a BW-12 forum in Indian Rocks Beach told her she had a client with a property built prior to 1972 with flood insurance rates jumping to $71,000.
Dubov said policyholders could reduce premiums some by dropping coverage on the properties contents and increasing the deductible.
Assessing value on properties in flood zones is going to be a challenge for next year, Dubov said. She encourages residents to get an elevation certificate and bring it to the property appraisers office so an accurate assessment can be made.
She said people might be reluctant to bring in certificates if they think the elevations are too low. The point of concern is the elevation of the floor of the lowest living area. She said she has had complaints from people that if she devalues their property, it will cause them to go back underwater on their mortgages.
“Folks, I have to respond to the market,” she said.
She added that the property appraisers office did not have information on individual properties within FEMA flood zones. She advised people to contact FEMA or their insurance agent.
Swain talked about the real estate market and said people were already backing out of contracts.
“They don’t want to make a move,” he said. “It is the fear of not knowing.”
He said when information about BW-12 started coming out, he wasn’t concerned.
“I thought something would be coming in the 11th hour to make it OK,” he said. “This is a very scary situation.”
Holehouse said no one ever imagined that the law would “retroactively change building codes to cause financial harm.”
“This is a longtime problem and can’t be fixed in five years,” he said. “We need to slow it down, talk about it and bring some intellect to the table.”
Dubov said many people believe this is a problem of rich property owners out on the beach. But, more subsidized policies are on inland properties than on the beach, she said. Of the 33,000 single-family homes in Pinellas with subsidies, more than 2,500 receive property tax exemptions as widows or widowers. Thousands more receive low income, veterans and disabled tax exemptions.
She said 20,000 of the homes were located inland and a “whole bunch” has median values under $100,000.
“This is our whole community’s problem,” she said.
The U.S. House of Representatives has passed a bill delaying implementation of the act for one year. Legislation also is pending in the Senate.
If the Senate does not act to delay the bill, as of Oct. 1, owners with subsidized policies on property that has experienced severe or repeated flooding will see their bills increase by 25 percent annually until the rate reflects true risk. Owners of business/non-residential properties in a Special Flood Hazard Area also will see rates increase by 25 percent annually beginning Oct. 1.
In addition, higher rates will affect any property that is sold and any policy that lapses. Severe, repeated flood losses will trigger rate hikes. Higher rates also will be charged for any new policies. All policies will pay a 5 percent surcharge to fund a reserve.
Policyholders of with subsidized policies on non-primary/secondary residences in Special Flood Hazard Area received a 25 percent increase on their rates Jan. 1, 2013. Those rates also will increase until rates reflect true risk.