March 2016

Flood Insurance: The Winds Are Changing

Author: Kitty Bartell

It doesn’t take a hurricane, tsunami, or epic event for a flood to become a monumental life disrupter. Like a too-heavy, buzzing beehive drooping from the branches of a live oak tree, the specter of water damage looms large over the heads of Lowcountry property owners. Surrounded by ocean, rivers, and waterways, the questions and confusion about insurance add mightily to the shadow cast by a potential flood.

The landscape of flood insurance is changing, and there has never been a more apt cliché: Knowledge is power—power to protect property, power to safeguard investment, power to minimize cost. Witnessing the damage created by Mother Nature and her hurricanes should be enough to generate serious enthusiasm for seeking flood insurance. Add to that broken water heaters, bursting pipes, or damage caused by any manner of rising water, and having a flood insurance policy in place should be a no-brainer.

To date, the Lowcountry has enjoyed relatively favorable rates on national flood insurance premiums; however, as of April 1, 2016, the rules are changing, making it particularly important to know what the options are and how to best care for your investments. By that date, if you have a mortgage that predates the exisiting federal flood insurance program, and you do not have flood insurance, the exisiting favorable rates will no longer be available, should you get elect to purchase coverage, said Lisa Jones, principal and founder of Carolina Flood Solutions, recognized by the National Association of Realtors as a leading expert in the field.

The Federal Emergency Management Act (FEMA) which manages the National Flood Insurance Program (NFIP) is reforming the program to make it more sustainable, beginning with the removal of long-standing subsidies. Per FEMA and the U.S. Department of Homeland Security, homes built pre-FIRM have enjoyed subsidized flood insurance rates that do not accurately reflect the property’s true risk, because they were constructed before the first Flood Insurance Rate Maps (FIRM) were drawn.

For residents of Beaufort County that date is September 30, 1977, Jones said. “If your policy says ‘Pre-FIRM Subsidized’ your rates are going up 15-18 percent per year. That rate will continue to rise until it hits full risk rate premium, and that’s where it caps out. We only know where the full risk rate premium is when they get an elevation certificate.”

The most powerful position for any owner is to keep their NFIP policy active, even if purchasing additional flood coverage through a private policy. “If you don’t have an NFIP policy, even if you don’t have a mortgage, you need to purchase minimum coverage on the building at least,” Jones said. “The private sector is coming into this market, which has limitations on what they’re going to allow you to have. For example, if you have more than one claim in a five-year period, they are going to drop you. If you drop NFIP and go to private and then they drop you and you try to come back to NFIP, you’re coming back at full risk rates premiums—you’ve lost your right to grandfathering.”

Further, “If someone doesn’t have a mortgage and they’re not required to have flood insurance, the first thing everybody does is drop their flood, because it’s not required and they don’t want to pay for it,” Jones said. “If you ever want to sell that house, you must have flood insurance coverage at an affordable rate, and if you’re eligible for the grandfathering, you have to have a policy in place.”

There’s power and protection in the right policy. “Insuring your home is part of the cost of homeownership; when a buyer has identified a property to purchase, they should immediately contact an insurance agent to obtain a quote on the cost of a policy,” said Jean Beck, executive vice president of the Hilton Head Area Association of Realtors. “We also recommend sellers contact their insurance agent prior to putting their home on the market to be sure there is a current elevation certificate on file.”

To summarize:
1) FEMA allows an NFIP policy to be purchased in addition to private flood insurance (be sure to check with private insurers regarding their own rules).
2) Existing NFIP policies may be transferred to new owners when a property is sold or when it has been transferred through inheritance. If an active policy is not in place, the rates to purchase a policy will be significantly higher.
3) NFIP policies that are active as of April 1, 2016, and those that have been in effect since the pre-FIRM date, will enjoy lower, grandfathered rates—premiums will not be affected by these changes.
4) NFIP policies that are identified as pre-FIRM will no longer be rate-subsidized and can expect an annual increase until they reach the full risk rate premiums set by FEMA.
Working to minimize the impact of the area’s fixed geographic location on flood insurance rates, Richard Spruce, town plans examiner for the Community Development Department said, “The Town of Hilton Head Island is the only jurisdiction in the United States that gets credit for their beach re-nourishment program. They know we’re going to keep the beach at a certain level, so they give us credit for that. When I go to the floodplain conference, it’s mentioned quite often that we’re the only ones they recognize for a beach re-nourishment program, because it is perpetually funded; they tell everybody on the East and West Coast to contact Hilton Head Island to find out how to do it.”

“We’ve been told for years now by FEMA that they’re going to be releasing new maps,” said Nicole Dixon, town senior planner. “Once we do get them, there will be public meetings for the public to come and see how the maps are changing.” Nixon is also the town’s community rating system coordinator. “The CRS program is a voluntary program where we go above and beyond FEMA’s technical standards, and they grade us on activities that we do. Right now we are a class five, so everyone in the regular floodplain receives a 25 percent discount on their national flood insurance,” she said.

Knowledge certainly is power. Waiting until the hive drops or the pipes burst is risky business. This is a call to action: Get in touch with your insurance agent; get the most up-to-date information; and get involved in protecting your assets. There has been no better time. 

Please visit the following websites for more information: The Town of Hilton Head Island at hiltonheadislandsc.gov; Carolina Flood Solutions at carolinafloodsolutions.com; and Hilton Head Area Association of Realtors at hhrealtor.com.

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