Flood insurance costs could climb for homeowners

LIHUE — More than 900 Kauai businesses and homeowners — especially oceanfront property owners — who benefit from federal flood insurance subsidies could see rate increaes because of a law signed by President Barack Obama in 2012.

“I don’t think this is the cause for panic yet. If you’re oceanfront, you’re going to have more increase than if you’re not oceanfront,” said Pam Brown, who has been an insurance agent on Kauai for 25 years. She added that many of her clients would see a 1 to 8 percent increase in their policies after the next scheduled changes go into effect Oct. 1.

In July 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act, which calls on the Federal Emergency Management Agency and other agencies to make a number of changes to the way the National Flood Insurance Program is run.

“Key provisions of the legislation will require the NFIP to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map updates impact policyholders,” FEMA states on its website. “The changes will mean premium rate increases for some — but not all — policyholders over time.”

The act has a five-year implementation schedule, with some changes already in effect.

“What they’re saying is, the government no longer wants to subsidized the (flood) policy as heavy, so a number of types of policy holders are going to get rate increases,” Brown said.

On Kauai, there are 29,793 housing units, and 4,439 of them have policies under the NFIP, according to FEMA. Sixteen percent, or 872, of the NFIP policies receive subsidies.

Beginning Jan. 1, subsidized policies on non-primary/secondary residences in a Special Flood Hazard Area saw a 25 percent increase in its annual rates, which will continue to raise at the same pace until the rates reflect “true risk,” according to FEMA.

On Oct. 1, a new set of changes go into effect.

Subsidized policies on properties that have experienced “severe or repeated flooding,” and subsidized policies on business/non-residential properties in SFHAs, will see a 25 percent rate increase, which will happen annually until their rates reflect true risk, according to FEMA.

Primary residences in SFHAs will be able to keep their subsidized rates unless or until the property is sold; the policy lapses; the owner suffers severe, repeated, flood losses; or a new policy is purchased.

The act defines “severe repetitive loss” for single family residences as four or more claims, each for more than $5,000 and cumulatively more than $20,000. For multi-family residences, the definition may be provided by regulation.

Additionally, the act phases-out grandfathered rates and moves to risk-based rates for most properties when the community adopts a new Flood Insurance Rate Map.

“This will happen gradually, with new rates increasing by 20 percent per year for five years,” FEMA states. Congress recently voted to delay the phasing out of grandfathering to late 2014.

According to the National Association of Insurance Commissioners, the act sets minimum deductibles. Minimum pre-FIRM property deductibles will be $1,500 if the property is insured for $100,000 or less; or $2,000 if the property has over $100,000 in coverage. Minimum post-FIRM property deductibles will be $1,000 for those with $100,000 of coverage or less; or $1,250 if the coverage is greater than $100,000.

Penalties for non-compliance with mandatory flood insurance purchase requirements went up to $2,000 from $350 per violation, and a $100,000 cap on fines for any lending institution in a calendar year was removed.

FEMA uses its own set of maps to determine flooding zones, which is used to determine flood insurance, according to Brown.

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