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Flood insurance rates pose threat to businesses, homes

Put both small businesses and home ownership at risk, Realtors say

Flood insurance costs continue to put small businesses and home ownership at risk, but the National Association of Realtors this week told Congress that a range of solutions are on the horizon.

David McKey, 2016 vice chair of NAR's Insurance Committee, told Senators that Realtors continue to report that their clients face significant hurdles due to excessive flood insurance costs and future uncertainty.

"Despite everything that's been done on this issue, the threat of a $30,000 flood insurance premium still looms,"McKey said. "A few years ago, the uncertainty over future rate increases was enough for

buyers to direct Realtors not to show them any listings in the flood plain. That's enough to worry business owners and homeowners alike, and it's something that needs to be addressed."

In his testimony, McKey praised the Homeowner Flood Insurance Affordability Act, which became law in 2014 and reined in the most inaccurate rate increases across the country.

Before the Affordability Act, thousands of small business owners faced immediate and excessive rate increases under FEMA's implementation of the "Bigger Waters Flood Insurance Reform Act of 2012."

But McKey warned the committee that significant concerns still remain. He noted that even now, rates continue to rise exponentially by 25% each year until policy-holders reach their "full-cost rate."

For a business or a homeowner to prove that they've reached the full-cost rate, they must hire a licensed surveyor and provide FEMA with a costly elevation certificate. If the certificate shows that the property owner has already reached full cost, the owner may request an optional full-risk rating to end the 25% increases. Otherwise, the increases continue.

This creates what McKey described as an "endless escalator" of rising costs for businesses and homeowners.

Although it isn't possible to determine how many properties will ultimately be affected, current estimates show that roughly 1 million properties have subsidized insurance rates that may be subject to significant increases.

McKey reiterated NAR's support for a range of solutions to address the problem, including:

Reauthorizing the National Flood Insurance Program, which sunsets in October 2017; using advanced technology to improve the accuracy of flood maps to provide the data needed to determine how many face unaffordable rates and also reduce the number of property owners who have to file expensive appeals, and fostering a private insurance market to complement the NFIP.

Additionally, McKey suggested an NAR-backed strategy for actually preventing flood damage. By authorizing the use of funds to proactively mitigate properties located in hazard areas, McKey noted that it's possible to protect property owners while saving taxpayers' money.

This might include flood-proofing, elevating or otherwise strengthening a property.

Unfortunately, while funding is currently available for mitigation efforts, funds typically aren't accessible until after a flood event, when costs are higher and the damage has already occurred.

"Realtors see the effect of rising flood insurance rates firsthand in their businesses and in the local communities," McKey said. "But commonsense solutions to the problem are well within reach."

David McKey is the managing broker/owner of Coldwell Banker One in Baton Rouge, Louisiana, and was the 2013 president of the Louisiana Realtors Association.

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