Flood Insurance – Some Relief Arrives, But Uncertainty Lingers
When President Obama signed the Homeowner Flood Insurance Affordability Act of 2014 this past March, the new law promised welcome relief to many homeowners who were facing sudden, steep, and in some cases, astronomical hikes in their flood insurance rates. But no one is celebrating too loudly. The law puts the brakes on how fast the increases will be phased in. But those increases won’t magically disappear.
First, FEMA re-drew its flood maps, putting many homes in flood zones for the first time. Then, people began getting notices about imminent flood insurance rate hikes. Big, sticker shock-inducing hikes. People said they felt blindsided and powerless. There were stories about how the huge increases could force people out of their homes; and complaints that FEMA’s new maps were flawed.
Hearing the cries, both state and federal politicians took action. The question is: will either of the solutions they crafted actually work?
On the federal side, Congress passed a law that doesn’t stop the flood insurance premium increases; it just slows them down a bit. Paul Chase, CEO of the Greater New Bedford Association of Realtors, said consumers are just now starting to understand the new law’s basic provisions.
“But maybe not all the intricacies and how it might affect them in the future, so it’s naturally making them nervous,” said Chase.
The new law limits flood insurance premium increases to a maximum of 18% per year. The move spreads out the financial pain over years for homeowners. But Linda Hops, the Regional Vice President of the Greater New Bedford Association of Realtors, said the words “flood insurance” still strike fear in many peoples’ hearts.
“I have had a lot of hesitancy on people saying, ‘If it’s got flood insurance, I don’t wanna buy it. I don’t know what's gonna happen in the future,’” said Hops.
The flood insurance issue continues to chill the market, and Hops and other realtors can’t make any promises or offer assurances to potential buyers who need to buy flood insurance.
“We have a form that says, ‘You have flood insurance, but we want you to sign this form saying we’re not guaranteeing anything – your flood insurance could triple.’ So that kinda spooks ‘em, too. It’s like the unknown,” she said.
If someone finds out they need flood insurance, the first step is to do some research. People should find out where they’re located on a FEMA flood map – because the maps often are wrong. Hops cites one example of homeowners who were nowhere near the water receiving a notice that they needed flood insurance. She decided to fight it with the insurance company.
“So I said, ‘Show me, on the map, where this property’s located.’ Well, they had the property about 6 or 7 blocks closer to the water than it really is,” Hops recalled. “So the maps are wrong,”
But the burden is on homeowners to prove that to FEMA. One of the best ways homeowners can protect themselves is to hire a surveyor to check their property and file what’s called a flood elevation certificate. It isn’t cheap, but according to Paul Chase, it often can be crucial to getting a property’s flood risk designation amended.
“If you’re talking about a $10,000 increase, a thousand-dollar survey is probably worth your while to do, ‘cause you stand a very good chance of bringing it down,” he said.
But that’s not guaranteed. And, with FEMA facing a 24-billion gap, agency officials have said they may amend their flood maps again in a few years, adding still more people to flood zones.
Meanwhile, elected officials in Massachusetts also are working on a fix. Recently, the House side of the state Legislature passed a law that would let homeowners buy flood insurance only in the amount of the balance of their mortgage. On the surface, that seems like a life-saver. But Massachusetts Senator Dan Wolf called the idea ill-conceived.
“When you look at who this legislation actually protects, it protects the mortgage holder,” Wolf said. “It doesn’t actually give the homeowner any protection, and in fact, it reduces the amount of insurance they have, so that should there ever be a catastrophe, they’re left naked – they’re left uncovered.”
If, for instance, a homeowner with $40,000 left on their mortgage bought flood insurance for just that amount, here’s what Wolf says would happen if their home suffered catastrophic damage in a storm.
“The homeowner is there with a destroyed home, a property that might not be worth anything. A $40,000 check gets written to cover what your mortgage was, and that person is wiped out,” he said.
Wolf said the current bill lacks a key provision.
“If we’re really gonna allow people to reduce their insurance to only cover the mortgage, then the bank that’s covered by that is the one that should pay the premium,” Wolf said. “It just seems so counter-intuitive. And to call this some kind of consumer protection bill just seems, like, absurd to me.”
Senator Wolf says he doubts the proposed State legislation will ever succeed in the Senate. Now that the Federal law has passed, he says State lawmakers should have enough time to craft a revised bill – one that offers homeowners a degree of rate relief, and protects them from potentially losing everything in the process.