As of April 1 of this year, flood insurance premiums have increased again. Here is a little history of flood insurance and who will likely be hit the hardest by changes in their premiums.
Small cottages. Many years ago homes on North Carolina’s beaches were mostly small cottages with no heating or cooling. At the time, flood insurance was not available so most people were unwilling to expose themselves to potentially catastrophic flood losses by building expensive homes on or near the ocean.
Uncle Sam steps in with subsidized flood insurance premiums. At some point our elected officials in Washington decided that it would be a good idea to create a federally insured flood insurance program. There was probably some logic behind their decision; maybe they thought we would be better off requiring people who live in flood-prone areas to pay something (premiums), rather than paying nothing and getting federal aid whenever there was severe flooding. Anyway, the national flood insurance program was created and policies were sold with heavily subsidized premiums.
Uncle Sam wakes up. Fast forward several decades and a different set of elected officials began to realize that our federal government was spending much more than it was collecting in taxes, and started looking for ways to stem those losses. One of the programs they found that was losing a lot of money was the Federal Flood Program. Of course, they wanted to do something, and they did. They commissioned some studies and determined that premiums would need to be increased substantially to collect enough to cover projected claims.
We’re hooked. Although they didn’t talk about it, they soon realized that over the years they had created a “captive audience” that would have no choice except to pay whatever level of premiums they thought would be needed to cover the claims. This was the case because they had created a law that said that anyone having a federally insured mortgage in a high hazard flood zone would be required to carry a certain amount of flood insurance. With almost all loans being federally insured, that meant that almost everyone would have to carry flood insurance to insure the large and expensive homes they had built on beaches as a result of the availability of relatively cheap federally subsidized flood insurance.
Premiums are going up. Fast forward to today and we are seeing large premium increases, with the latest round of increases going into effect April 1, 2016. The overall nationwide increase is supposed to be 9 percent this year, but those increases vary depending on whether buildings are primary homes, were built prior to the 1980s or are in flood hazard zones, or if property owners have been paying artificially low premiums since flood zone maps were created in the 1980s.
A few details. Hardest hit are pre-FIRM business properties and pre-FIRM non-primary residences which will receive premium increases of 25 percent per year until FEMA determines that they are no longer subsidizing the rates. Pre-FIRM primary residences will see increases up to 18 percent, as will properties that are not homes or businesses, such as churches, nonprofits and schools.
What to do? Depending on the particulars of your case there will be some things that you can do to reduce the impact of the current premium increases. I’m not even going to try to list those here because too much depends on the particulars of your situation. My suggestion is for you to have a serious discussion with your insurance agent to determine what, if anything, you might be able to do.
Jim Moore is the president of James E. Moore Insurance Agency. Established in 1954, it has become one of the most trusted independent insurance agencies in North Carolina. The James E. Moore Insurance Agency is a family-owned business and offers homeowners, automobile, life and health, employee benefits, and commercial insurance products. For more information, call 910.256.5333 or visit the agency’s website at www.jamesemoore.com.
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