Friday, May 31, 2013

INFO CENTRAL PRESENTS: Insurance for the Barrier Islands with Nat Italiano

In July of 2012 a piece of legislation was passed designed to improve the stability of the National Flood Insurance Program (NFIP) by changing the way it is run. The legislation is being implemented over time, and big changes to flood insurance policies are on the way.

On May 29th, Nat Italiano of Italiano Insurance (Boca Grande) spoke with about 30 Islanders about the impact these changes will have. 

These changes are complicated. The information below is a summary of what was presented to us. However, do not depend on this summary as the sole source of your information. To fully understand these changes, you will want to speak with your insurance representative. 


“SUBSIDIZED” RATES

For Island homeowners, the most immediate changes will impact single-family homeowners with structures built before 1974, the year that Charlotte County adopted its first Flood Insurance Rate Map (FIRM). These homes are considered “Pre-FIRM” and your rates are “subsidized”, meaning you are paying a rate that is lower than your actual risk.

If you have a pre-FIRM home and it is your primary residence, you will be able to keep your subsidized rate as long as you have continuous coverage, until you sell your home. At that time, the rate will jump to full risk for the new owners. Conventional rate increases will still apply.

As of January 1, 2013, if you have a pre-FIRM home and it is a secondary residence, your rate subsidy is being phased out. You will see an increase each year until your rate reflects true flood risk. The increase will be 25% of the difference between what your rate currently is, and what it should be. The annual increases will continue until you have arrived at full rate.

Starting October 1, 2013, the same 25% rate increases will apply to owners of pre-FIRM business properties and “severe repetitive loss properties”, a property that has experienced severe or repeated flooding.

Also effective October 1st, if your policy has lapsed you can no longer get a subsidized rate. Full-risk rates will apply to owners who are not insured as of July 12, 2012 or if you purchased a policy after that date.

Flood insurance used to be assumable: sellers could transfer their flood insurance policies to new home buyers. Effective 10/1/2013 – but retroactive to home sales closed since 7/12/2012 – buyers must purchase flood insurance policies at the full risk rate.

Guidelines for owners of pre-FIRM condos and non-condo multifamily structures that will affect their subsidized rates are presently being developed by FEMA.

“GRANDFATHERED” RATES

The FIRM was re-mapped in May of 2003, raising the base flood elevation about 1 foot. At that time, most properties on the Island went from “A” to “V” (velocity) zone, which is a higher-risk classification. Policies written for V zones have a higher premium than an A zone. 

In the past we had grandfathered rates for homes that were built to code based on the prior flood rate map, as long as you had continuous coverage and if you could prove (with a flood elevation certificate) that you were in an “A” zone when the house was built.

The new legislation will phase out grandfathered rates over a 5-year period, beginning late in 2014. Property owners affected by the map changes, including non-subsidized (post-FIRM) policyholders, will get rate increases that will gradually adjust the risk upgrade from an A to a V zone. This annual increase will be 20% of the difference between what your rate currently is, and the full risk rate for a “V” zone property.

ANY policy that was first written AFTER July of 2012 will need a new flood elevation certificate. If you need a new flood elevation certificate (i.e. if you are selling your home and do not have one), you will be updated to a “V” zone and the rate will be higher. 

It is important to make sure that you keep a copy of your flood elevation certificate, as your risk assessment is based on the information on the certificate. Your insurance agent MAY have it on file, but they are not obligated to keep it. You will want to have your flood elevation certificate available when you speak to your insurance representative.

OTHER FACTORS that affect your RATE

Enclosures under the house also affect your flood insurance rate. They are generally allowed for parking, storage and entryways, and must be code-compliant. There was some discussion regarding “hanging enclosures”, usually golf cart storage sheds that are not on the ground. (Click HEREfor attachments about hanging enclosures) Know that 40% or more lattice surrounding your storage is considered an OPEN structure, NOT enclosed.

COBRA ZONES

Established in 1982, COBRA zones are areas not included in the NFIP. They are delineated on FEMA’s flood insurance rate map. Realtors are obligated to disclose if you are in a COBRA zone, but you should check the property appraiser’s records as well as checking the FEMA map to see if you are in or out. When the FIRM was updated in 2003, and most of the Island went from “A” zone to “V” zone, the COBRA line was moved 50 feet. So its important to check the map. There have been examples of the line change splitting a lot in half (half in, half out), so that if there is no structure on the property it will be considered within the COBRA zone when developed.

COVERAGE

What does flood insurance cover? Damage done by rising water or storm surge. The coverage with a basic NFIP policy maxes out at 250K/100K. Excess flood coverage is available, but it is very expensive for pre-FIRM or V zone properties. In the event of flooding, NFIP flood insurance will cover the damage up to the policy maximum allowed OR 80% of the value of the home if the home value exceeds the policy maximum.

Florida has a single-adjustor program for wind and flood policies. You CAN collect from both wind and flood policies on the same incident, but combined the payout cannot exceed the covered value of your home.

CITIZENS WIND INSURANCE CHANGES

Citizens uses cost estimators, so large houses are paying a lot more this year.

Many residents have been receiving a Certificate of Assumption notice. Citizens trying to move some of their policies to other companies i.e. Weston and Heritage. Both of these are new companies (Heritage is newer). Weston’s rates will parallel Citizens’ rates for at least 3 years. Weston is also re-insured. Citizens has a $500 billion reserve, enough to cover payout for one 100-year storm. The advantage of accepting the assumption: with Citizens, you run the risk of being assessed up to 45% for their losses. The disadvantage: will the new companies stay in business? If they go out of business, Citizens has to take you back but NOT at your old renewal rate.

Citizens is no longer renewing policies for homes with replacement costs of over $1 million (house value only, not property). In three years, that cap will be reduced to $750K. Also, their policies now have reduced coverage i.e. your screen porch is NOT covered if it is made of a different material from your house. Nat recommends that you check your coverage.

Also, for renters: Citizens has a “commercial residential” policy for condos only, where you can buy coverage up to the full replacement cost of the home. Now there is a new category for condo rentals: “transient occupancy”. It is for condos where 25% or more of the renters stay for less than 30 days. These condo owners can no longer buy the commercial residential policy. They will have to buy a full commercial policy at a higher rate.

MORTGAGE-FREE: DO WE HAVE TO INSURE?

Nat was asked about dropping flood insurance, but he does not recommend it. You do not HAVE to have wind insurance, you can just carry flood and homeowners. The homeowners’ insurance company cannot REQUIRE that you have a separate wind policy. 

SUMMARY

This insurance seminar was excellent, informative and much needed. The folks who attended got a whole lot of important information in a very short time. The upshot is: contact your insurance agent, and check the specifics that might apply to you.

Kudos to the volunteers of Info Central for arranging this presentation. In view of the positive response, this program may be repeated next season.

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