Important headlines for July 25th - South Florida's coming insurance flood
Bottom Line: These are stories you shouldn't miss and my takes on them...
Excerpt: The letter might have already come in the mail. “Your building is at high risk for flooding,” it declares in bold. There are ominous charts warning that if you don’t take action, your flood insurance premium could rise up to 18 percent each year.
The bottom line: your flood insurance premium is going up again — and under a policy change the Federal Emergency Management Agency is considering, it could skyrocket even more in coming years.
Last time the National Flood Insurance Policy got this type of revamp the results were dramatic. Premiums doubled, tripled and more in flood-prone areas. In one extreme case, the premium on a $300,000 house in Monroe County went from $1,900 a year to more than $49,000. Congress hastily walked it back, but the motive behind the change (the NFIP’s sorry finances) has only gotten worse since then.
FEMA confirmed to the Miami Herald that it is looking into switching to risk-based pricing in 2020, which would end the subsidies most coastal communities enjoy on their flood insurance premiums and show the true dollar cost of living in areas repeatedly pounded by hurricanes and drenched with floods — like South Florida.
Hot Take: Ironically enough I've been talking about insurance issues recently and this is certainly one of them. The Federal Flood insurance program has been in crisis mode ever since Super-Storm Sandy in 2012. The program paid out billions in claims and the program's debt spiked to above $20 billion. Through huge premium increases and fewer claims mild progress was made leading up to last year's cycle, led by Hurricane Harvey's claims that saw to it that it'd firmly remain in crisis territory. In South Florida a redistricting of flood zones further exacerbated the cost issue and spread the flood insurance crisis to a new group of homeowners who previously weren't required to have flood insurance. The bottom line is if you have a mortgage and you're in a flood zone you must have flood insurance.
Once upon a time the flood insurance program adjusted annually based on the solvency of the program and risk assessment. In the wake of Sandy many of us saw premiums double in 2013 and 2014 prior to a law being passed and taking effect that capped the annual increase at 25%. But 25% is a big number and flood insurance, which was once relatively affordable for many homeowners, became a product that rivaled the cost of a full homeowner's policy. As an example, my policy, without any claim history, rose from just over $1,400 in 2012 to what would have been more than $7,200 this year had we renewed it – which we choose not to do.
With max or near max increases coming and potential wholesale changes coming in 2020 here's what you need to know... Regardless of where flood claims are paid out – IE Texas during Harvey or New Jersey, New York, etc., during Sandy – we'll get hit as hard as anyone in South Florida. Even without a claim history. This means that if you're in a flood zone there's a far better than not chance you'll experience significant annual increases for the foreseeable future.
For that reason, you might choose to prioritize paying off your home, so you have additional flexibility regarding the level of flood insurance you choose to have rather than what you're mandated to have. After the 04', 05' hurricane cycle many were caught in a position where they couldn't afford increases to wind-mitigation policies. In the years to come we could see a repeat with flood insurance being the catalyst this time. Planning ahead could be important because there's no indication that they'll be a panacea for South Florida.