Grandfathering Gone: Flood insurance rates to dramatically change nationwideFeb 5th, 2013 | By Terri Sercovich | Category: top story
Fear and uncertainty are on the minds of many Plaquemines Parish residents as FEMA officials explained impending changes to the base flood elevations in the parish and the flood insurance rates nationwide.
Over the last two weeks, FEMA officials have been holding public meetings to inform Plaquemines residents and business owners:
1- Flood insurance rates will be changing no matter where you live— above or below the floodgate, or either side of the river.
2- The exact rates are not scheduled to be released until May 2013.
3- Base flood elevations will be rising dramatically for all of Eastbank Plaquemines and Westbank below the flood gate.
4- All changes have been scheduled to take affect by 2014.
The changes come as a result of the Biggert-Waters Reform Act of 2012, signed into law on July 6, 2012. The FEMA officials sent to explain the changes to the National Flood Insurance Program (NFIP) say it is the only way to keep the program afloat.
10 years to repay $27.45 billion
With $27.45 billion of debt to the federal government, lawmakers decided that in order to keep the National Flood Insurance Program, NFIP, viable, the system needed to be revamped.
The Biggert-Waters Reform Act of 2012 keeps the NFIP operational until 2017. It passed the House by a vote of 373-52, and the Senate by a vote of 74-19; and on July 6, 2012, President Obama signed it into law. At that point the program was in debt for $17.75 billion, with a $20 billion borrowing authority.
In August Hurricane Isaac hit Louisiana, and in October Super Storm Sandy hit New York and New Jersey.
On January 4, 2013, the House and Senate passed an additional $9.7 billion for Sandy flood claims. The Biggert-Waters Act raised the NFIP borrowing authority to $30 billion. The Sandy loan plus the past loans brought the total amount Congress is requiring NFIP to pay back to $27.45 billion. FEMA officials in Washington D.C. said that Congress has asked for a plan to repay the debt within 10 years. That equates to approximately $2.75 billion per year on the money borrowed to-date. FEMA officials noted that the move to actuarial rates is to bring the amount taken in from policy holders to the amount expected to be paid out for each year.
Because flooding is so unpredictable, some years the program may break even, other years there may be a deficit, and still other years there may be no major claims events and some of the debt will be paid back.
Who is exempt?
According to FEMA, there are some lucky area policy holders who will be exempt from actuarial rates, rates based on actual risk. Basically, primary residences, except for those expressly called out by the legislation, will not see actuarial rates, said a FEMA official.
Those expressly called out are:
• New policies
• Policies that were allowed to lapse
• Properties purchased after July 6, 2012- flood insurance policies can no longer be transferred to new owners when the property is sold
• Secondary or non-primary homes (homes lived in less than 185 days per year)
• Severe Repetitive Loss Property
• Business properties
• Any property that has incurred flood-related damage in which the cumulative mounts of NFIP Flood Insurance Claim Payments (paid flood claims) equaled or exceeded the fair market value of the property.
• Preferred Policies- policies for structures in X-zones, the least risky flood zones
When flood map changes occurred, the NFIP provided a lower-cost flood insurance rating option known as “grandfathering.” There were two classifications of grandfathering available for property owners:
1- Zone Grandfathering- If the property owner had a flood insurance policy in effect when the new flood zones became effective, and then maintained continuous coverage.
2- Elevation Grandfathering- If the property owner had built in compliance with the FIRM, Flood Insurance Rate Map that dictates the Base Flood Elevations, in effect at the time of construction.
Biggert-Waters Act phases out these grandfathering options for some policy holders.
New structures were to be built to the base flood elevation standards in place at the time of construction.
Since the passage of Biggert-Waters, grandfathering is scheduled to be completely phased out for all but the least risky policy holders, businesses and non-primary residences. Insurance rates will be based on whether your structure is above, below or at the new BFE height.
These heights were determined by FEMA and will be given to the Plaquemines Parish Council to be adopted this year. (See later section entitled Council Options.)
If you are at compliance level, you will have a zero-rating, and pay only your updated rate.
If you are in a 10-foot elevation zone, but your structure is only raised 3-feet, you will pay a -7 rating, which will cost more than the zero-rating.
On the flip side, if you own a structure 15-feet off the ground in a 10-foot elevation zone, you would have a +5 rating, and would be charged less than the base flood elevation zero-rating.
FEMA gives the example of a pre-FIRM home with $200,000 in building coverage, in an AE flood zone.
The premium prior to elevation is $1,644.
The premium at an elevation of +1 BFE is $612.
The premium at an elevation of +3 BFE is $338.
FEMA notes that the figures are based on a standard deductible with no Community Rating System, CRS, discount.
Rate Increases Phased In
As is the case now, the inclusion of Belle Chasse in the metro area Hurricane Protection System has caused a decrease of base flood elevations there. Although most areas inside the Hurricane Protection System have seen base flood elevations decrease, this does not necessarily mean a decrease in annual premiums. On the contrary, some policies both north and south of the flood gate will see change.
The new Base Flood Elevations are part of the established re-evaluation process. If a neighborhood’s BFEs decrease, homeowners should not expect their annual flood insurance premium to also decrease.
According to FEMA officials, the new law calls for certain subsidized rates to be phased out at a rate of 25 percent per year until an average actuarial rate is hit, whether it takes two years or ten.
Insurance companies can quote a new actuarial rate estimate once they are released in May 2013.
So, if your 2012 flood insurance cost is $1,000 per year and the actuarial rate brings your new cost to $3051, your premium will be increased to $1,250 the first year; $1,562.50 the second year; $1,953.13 the third year; $2,441.41 for the fourth year; and $3,051.76 the fifth year. This 25 percent will keep getting added to your premium until you reach your actuarial rate estimate.
Dates of Enactment
The Biggert-Waters Act had an ambitious schedule of implementation that was supposed to have started August 6, 2012— 30 days after President Obama signed it into law. But the schedule did not take into account the amount of time needed to implement the conversion from grandfathered rates to actuarial rates. FEMA officials say that the only policies fully implemented under the new changes are secondary/non-primary homes.
Actuarial ratings will take the place of the grandfathering system in the below scheduled phases. All of these phases will be implemented over the next four years at 25 percent increases until the full actuarial rate is met.
August 6, 2012:
- New policies
- Policies that were allowed to lapse
- Properties purchased after July 6, 2012- flood insurance policies can no longer be transferred to new owners when the property is sold
January 1, 2013:
- Secondary or non-primary homes (homes lived in less than 185 days)
(FEMA reports that secondary/non-primary home policies are the only policies that have switched fully to actuarial ratings.)
- Severe Repetitive Loss Property
- Business properties
- Any property that has incurred flood-related damage in which the cumulative mounts of NFIP
Flood Insurance Claim Payments (paid flood claims) equaled or exceeded the fair market value of the property.
- Preferred Policies- policies for structures in X-zones, the least risky flood zones
Base Flood Elevations
Plaquemines Parish’s base flood elevation map is a patchwork of updates throughout the years. The first map was made at the start of the flood program, but over the years, parts have been updated while others remain the same. As areas of the parish grew, the location of those new developments were reevaluated and new elevations were adopted, but some are still dated.
“Some of these maps are of 1985 vintage,” said FEMA Mitigation Specialist Tom McDermott, at the Buras town hall meeting. “Things have changed.”
The changes that will soon take affect were based on the post-Katrina landscape of a disintegrating coastline and a multi-billion dollar hurricane protection system.
Maps are scheduled to be reviewed every five years, although it does not always happen. But, this means that if and when Plaquemines sees more improvements to its flood system outside of the metro Hurricane Protection System, or if coastal restoration efforts produce results, maps will be reevaluated and conversely, BFEs could be decreased.
Parish Council Options
Preliminary maps have been published on the FEMA website www.riskmap6.com; they are the new base flood elevations that each parish will have to adopt into code.
At some point soon, FEMA will publish a notice of proposed flood hazard determinations in the Federal Register and notify Plaquemines Parish President Billy Nungesser of the determination. FEMA will then publish information about the flood hazard determination at least twice in The Plaquemines Gazette , Plaquemines Parish’s official public journal.
Then the Plaquemines Parish Council will have a 90 day appeal period. This period is strictly to address: 1-mistakes in calculation, i.e. if a piece of measuring equipment used to determine the new elevations was faulty in some way; and 2- typos or wrong information, i.e. if a street name is wrong.
After the appeal period, the parish must adopt these new elevations or suffer the consequences. If the maps are not adopted by PPC, there is a year-one penalty: policy holders will each be charged an extra $100 when renewing his or her policy.
If not adopted the second year, the parish goes into suspension and all policy holders within Plaquemines will be denied coverage with the National Flood Insurance Program.