CTAR Lunch & Learn: 2013 Flood Insurance Changes
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The document outlines essential information about flood insurance, including coverage limits, the impact of recent reforms under the Biggert-Waters Act, and the factors that influence insurance rates. It emphasizes the importance of acquiring flood insurance to protect assets, particularly in high-risk areas, and discusses upcoming changes that could affect policy costs and requirements. Real estate professionals are encouraged to assist clients in navigating these changes by obtaining elevation certificates and understanding the implications of flood insurance on real estate transactions.
CTAR Lunch & Learn: 2013 Flood Insurance Changes
- 1. Andrew Muller, CIC, AAI, PRIS Private Client Insurance Advisor Mappus Insurance Agency, Inc. 843.763.4200 www.MappusInsurance.com
- 2. Objectives Flood Insurance 101 Flood insurance changes (BW-12) and what realtors need to know How to help reduce flood insurance premiums
- 3. The Basics
- 4. Flooding & Flood Risks Anywhere it rains, it can flood. Def: A flood is a general and temporary condition where two or more acres of normally dry land or two or more properties are partially or fully inundated by water or mudflow… EVERYONE is in a flood zone…it is just a matter of how severe or high hazard of a zone one is in.
- 5. Flood Insurance 101 Coverage Limits: $250k for residential buildings, $100k for contents. $500k for commercial buildings, $500k for commercial contents. Replacement Cost is ONLY for single-family dwellings that are primary residences. Otherwise, you will receive an Actual Cash Value (ACV) settlement. B, C & X zones are low hazard flood zones and you are not required to carry flood insurance if you have a federally backed mortgage A & V Zones are high hazard zones and you are required to carry flood insurance if you have a federally-backed mortgage
- 6. Why Have Flood Insurance? To protect your assets from a loss To meet requirements (mortgage holder) Flood coverage is ALWAYS excluded from your home insurance policy…always Living in Coastal areas like the Lowcountry present higher chances of a flood occurring Would you not carry fire insurance? Auto liability insurance?
- 7. Flood Insurance Stats and Facts You have a 26% chance of a flood occurring over the course of a 30 year mortgage life There is a 9% chance for a fire to occur You are more likely to have a flood than your home burglarized You are more likely to have a flood than your car stolen 90% of all Presidentially declared disasters involved flooding Non-High Hazard Flood zones (X zones) represent 20% of all flood insurance claims The average residential flood claim was $30,000 from 2007-2011 The average standard A Zone flood insurance policy costs about $600 Roughly 20% of all flood policies use subsidized rates yet cause the most claims payouts
- 8. How Are Rates Determined? Lots of factors determine flood insurance rates. These include: flood zone (X, A & V Zones) amount of coverage requested (i.e. $250,000 for Building) location of structure age and design of structure building occupancy (Residential, single family, multi family) structure elevation if located in a Special Flood Hazard Area (raised, slab, crawlspace…)
- 9. What is Biggert-Waters (BF-12) and What are they doing with the Flood Insurance Program???
- 10. Biggert-Waters Reform Act of 2012 Over the years, costs and consequences of flooding have continued to increase Super Storm Sandy Hurricane Katrina Reconstruction Costs, Inflation… For the NFIP to remain sustainable, the premium structure must reflect the true risks and costs of flooding Proposed changes are designed to increase the fiscal soundness of the National Flood Insurance Program
- 11. What are Subsidized Rates? Reduced rates that are below the actuarially sound rates that should be given to a specific property Helps provide affordable insurance to protect from flood related losses Within the NFIP program, subsidized rates are most commonly applied to structures built Pre-FIRM Built prior to 1975 in many communities; Charleston County 1971 (joined NFIP) Dorchester County 1982 Berkeley County 1983 Built prior to the initial Flood Insurance Rate Map (FIRM) which varies by community
- 12. Changes Coming Down the Pipeline Premium Increases (avg. 10% across the board) No extension of subsidy for New Pre-FIRM Policies or Lapsed Pre-FIRM policies Current Pre-FIRM policies will start seeing increases annually till the full risk rate is achieved What is the “full risk rate” you ask? Elimination of No Waiting Period due to Lender Requirement (except for NEW home loans)
- 13. Premium Increases Overall average increase of 10% 25% premium increases for certain Pre-FIRM policies Non-primary residences Severe Repetitive Loss (SRL) properties Business properties V Zones Post-FIRM = 11% Pre-FIRM = 17% A Zones Post-FIRM 6% Pre-FIRM AE zones = 16% X Zones Standard rated policies = 8% Preferred Risk Policies (PRP) = average of 1% ***NFIP has not given any specifics as to a ceiling on the level the rate will rise to, so anticipate these rates to increase every year at this rate
- 14. What Qualifies For A Direct Move to Full-Risk Rates After the sale/purchase of a property Subsidized rates can no longer be assigned to the new owner After a policy lapse Will be costly if this happens…don’t let it happen Sometimes happens in error when a client moves but house is still for sale New policy is issued Policies for buildings that are uninsured as of 7/6/12 or later Elevation Certificates You also must present an elevation certificate to establish a basis. EC’s cost anywhere from $350-$750 Mappus Insurance has negotiated a special rate with Atlantic Surveying, Inc. Find coupon on our website.
- 15. 30 Day Waiting Period Impacts policies where there is a loan on a structure in a Special Flood Hazard Area (SFHA) Zones beginning with A or V Lender determines a flood insurance policy has not been issued Structure owner is required to purchase a flood insurance policy 30 day waiting period will be imposed on these new business policies ***This does not affect NEW loans
- 16. How Can You Help Prepare Your Buyers and Sellers? These new changes can dramatically affect the buying power for a home purchase AND the purchase price Get an Elevation Certificate. KNOW WHAT YOU & CLIENTS ARE BUYING Determines your Post-Firm rates Possibly a buying/selling feature Contact a competent insurance agency immediately to work with your client Always recommend flood insurance
- 17. Saving Money On Flood Insurance Use of Higher Deductibles Cover Building ONLY, No Contents Consider Elevation (example on next page) Apply breakaway walls or openings/ventilation (1 sq. in. per 1 sq. ft. of floor) Ensure all enclosure areas are for parking, storage and building access ONLY. Cannot be furnished. If renovations have been made, verify with the town/city that all permits, requirements and laws were followed. This can be very costly and an E&O claim against real estate agents.
- 24. Other Things To Come Grandfathering will be going away in the future. These are post-firm homes that were built to compliance at the time it was built but laws have changed since. Their rates do not reflect current actuarial rates Date is unknown but expected sometime in 2014. Rates will be phased-in Could get delayed…… Flood zones are currently being remapped and are set to change in May 2015 Could get delayed……
- 25. In Closing Get an Elevation Certificate Go to MappusInsurance.com for coupon Work with a competent insurance agent Create a great customer experience
- 26. How To Contact Andrew Andrew Muller, CIC, AAI, PRIS 843.714.9389 Cell 843.763.4200 Office Andrew@MappusInsurance.com www.MappusInsurance.com Want to stay current on flood insurance and other home insurance tips and strategies for your clients to help reduce their risks and premium? Email Andrew with the subject line “CTAR Flood Presentation” and you will be entered to win a $50 Gift Card to Maverick Restaurant Group
- 27. What the Association of REALTORS® is doing: WORKING WITH U.S. HOUSE OF REPRESENTATIVES: With NAR’s support, Reps. Bill Cassidy (R-LA) and Maxine Waters (D-CA) have successfully passed out of the House an amendment to the Homeland Security Appropriations Bill to delay removal of “grandfathered” flood insurance rates for one year. This will provide FEMA with additional time to complete the “Biggert-Waters” affordability study and report to Congress on the impact of this and other rate reforms. Congressman Mark Sanford voted for the amendment. SENATE HAS YET TO ACT; DELAY IS NOT LAW WORKING WITH U.S. SENATE: United States Senators Mary Landrieu (D-LA) and David Vitter (R-LA) are working with NAR to include the delay in the Senate version of the Homeland Security Appropriations Bill, and also expand it to include the other rate provisions effective October 1st which will start impacting home purchases later this year. Senate has not yet voted on amendment. AMENDMENT FOR DELAY ONLY FOR GRANDFATHERING The law’s other phase-outs -- for older second homes and business properties and for homes purchased after July 2012 – will continue to take effect on October 1, 2013. NAR is working on a longer delay and expanding it to include the other subsidy phase-outs, in addition to grandfathered properties.
- 28. MORE ON WHAT REALTOR® ASSOCIATION IS DOING FOR YOU: FEMA is developing an affordability study in a report to Congress. NAR is working with FEMA to provide the data we receive from our survey. NAR successfully advocated for the study’s inclusion in the five year bill. CITIES can lower their flood insurance premiums for their entire jurisdiction by sometimes just as simple as filling out paperwork through the Community Rating System (CRS). CTAR will be working with cities over the next year to ensure they’re doing all they can to improve their community rating. CONGRESSIONAL STAFF SYMPOSIUM: NAR, in cooperation with the American Bankers Association and the National Association of Home Builders, held a flood insurance forum for Members of Congress and congressional staff. The purpose of the forum is to educate Congress on the coming changes required under the Biggert-Waters legislation and discuss legislative and regulatory options currently under discussion. COMPLETED U.S. SENATE BANKING COMMITTEE: Conducted a hearing on the affordability of the NFIP rate provisions. COMPLETED