WE’RE HEARING about sticker shock over premium rate increases on flood insurance policies. Just when you thought you could not hear enough about a national insurance issue another one is popping up. Homes near the water typically have a lot in common including high prices. High prices mean a bigger mortgage which should make a broker/LO happy. That is of course after the deal closes which cannot happen without flood insurance.
Consumers and Realtors are up in arms about renewal rate increases to flood insurance policies after implementation of the Flood Insurance Reform Act of 2012. In testimony before Congress the president of the Florida Board of Realtors described the increases as “dramatic” and “beyond what was intended by Congress.”
A bill was introduced in the U.S. Senate (S.1610) a few weeks ago to delay implementation of sections of the 2012 Flood Insurance Act, including rate increases. Unlike that other national insurance issue this bill has bipartisan support (23 senators so far) and a companion bill is in the House. The Senate Bill is known as the Homeowner Flood Insurance Affordability Act of 2013.
The NAR and other state Realtor groups support the bill and are urging members to contact their elected officials. Looking at the numbers besides the rate increases there are 5.6 million property owners in over 20,000 communities in the U.S. that rely on the National Flood Insurance Program. As of 2011 the NFIP insured over $1.25 trillion (yes trillion) of property.
A study by the Wharton Center for Risk Management and Decision Processes that analyzed 30 years of data (1978-2008) of flood insurance premiums and claims found a large disparity among the states. Some states paid out much more in premiums than they got back in claims and vice versa. This relates to the difficulty in predicting where the next big storm is going to hit.
One of the reasons to delay the mandated rate increases in the NFIP is to allow FEMA to complete an affordability study it is required to do. Allow is probably the wrong word since the study was supposed to be completed by April of this year. It turns out this study will take FEMA another two years to complete. Sounds familiar.
Other attempts to block the insurance premium increases have included a law suit by Mississippi. Florida filed a friend of the court brief in support of the Mississippi lawsuit. It has also been reported that the Florida Senate Banking and Insurance Committee discussed withdrawing from the NFIP altogether and try and come up with a plan to attract private insurers.
How about all those good-faith estimates that were probably way out of whack with the flood insurance premium rate increases? Nothing like having an unhappy borrower at closing assuming the deal did not die in the process because of the monthly payment escrow increase. How about when the closed deal customer is calling you a year later to scream about their increased loan payment? I guess you can politely point out to them that they do get to live by the water.
Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at
