A big flood of insurance changes ahead

I should really have been expecting the letter from my flood insurance company when it arrived in my mailbox in late August.

Last July, even before Hurricane Sandy, Congress passed this thing called the Biggert-Waters Flood Insurance Reform Act, which forces some people who have flood insurance to pay the full cost of insuring their property. Right now, the federal government subsidizes those insurance rates.

The changes don’t affect all property owners near the water, and they don’t necessarily affect the ones that are in the most danger of flooding either. They only affect policies on properties purchased after July 6 of 2012 and policies that lapsed or were reinstated on or after Oct. 4, 2012. At the time of any real estate transfer, the new homeowner will pay the new rate.

Now, you may say ‘that’s just fine. Flood insurance is optional. I can live without it.’ But your mortgage company, if you’re like most people and get a mortgage to buy a house, isn’t going to let you get away with that. And, now, all new policies are going to require an Elevation Certificate, prepared by a surveyor, that stipulates exactly how high above sea level your individual property is.

There’s little information out there about just how much these changes will impact flood insurance rates, but FEMA has prepared some guidelines that should put some homeowners at ease and should worry others.

FEMA gives an example that, under the old rules, a $250,000 building and contents policy for a house in the high-risk AE flood zone would cost $3,600 per year, whether that property is four feet below or four feet above this handy measurement they call the “base flood elevation.” The base flood elevation is the height above sea level that storm waters are expected to rise in a 100-year flood. Under the new rates, according to FEMA, the property owner whose property is four feet above the BFE will pay just $553 per year, while the owner whose property is four feet below BFE would pay $10,723 per year.

You can find your base flood elevation here. 

All this stuff is just a guideline — insurance rates are going to vary greatly based on individual variables specific to your property.

I bought my little 640-square-foot house in December of last year. We were in contract when Sandy hit, which was a fortuitous way to test the flood resiliency of my property before sitting down at a closing. Sandy’s flood waters didn’t come near the house.

But FEMA’s flood insurance rate maps put a teeny tiny corner of the back of my garage in the flood zone, so I was required to insure the entire property.

Now, when you’re about to close on your first house, you don’t argue when your bank tells you to do something. You just do it.

But I’ve been staring at the back couple feet of my garage all year, wondering what kind of madness I’ve been roped into. My flood policy costs twice what my homeowner’s policy costs. It has a high deductible and only covers the building, not the contents. I can’t imagine what kind of damage a flood could do the the back two feet of an uninsulated garage wall that has no wiring in it. But I do know any damage would cost me less than I’m paying for an annual insurance premium, if I just repaired on my dime.

Early on, I researched what could be done to convince FEMA my garage isn’t in a flood zone. They have an elaborate process called a Letter of Map Amendment (LOMA), which you can use to try to get out of being listed in a flood zone, if you really and truly are not in a flood zone. It wasn’t until this fall, though, that FEMA’s LOMA form became available entirely online, which should be a godsend for property owners, who previously had to rely on surveyors to send the information to FEMA.

I conveniently forgot about the Biggert-Waters changes, even though I signed one paper about the changes in the stack of 500 papers they gave me at the closing, until I got the nice letter from my insurance company saying they’re not renewing my policy next month. So, now, it’s time to play catch-up, and play the game quickly before the clock runs out.

Now, what you need in order to complete this process is a good relationship with a surveyor, who must come to your house and certify the height of the buildings that you want taken out of the flood zone. LOMA requires a one-page Elevation Form, but flood insurance companies require an Elevation Certificate, which is a much more in-depth form. FEMA will accept an Elevation Certificate instead of an Elevation Form for the LOMA process, but my surveyor told me the certificate would cost much more than the form, and would involve all kinds of crazy machinations like crawling under my house to get elevations of all the mechanicals. Since my house isn’t even in the flood zone, I opted for the less expensive method, which he estimates will cost me around $500. If my garage is, in fact, in the flood zone, he’s going to have to come back and do the whole certificate and send it to my insurance company, and I’m going to have to just bite the bullet and pay up.

The cost for all this varies greatly depending on your location, my surveyor told me, because it all depends on how far away the nearest United States Geological Survey benchmark is from your house. Yikes.

The surveyor was here last week, and I’m still waiting for him to send me my completed elevation form to see whether the garage can be taken out of the flood zone. Meanwhile, a nice woman from my bank called yesterday to see what I’m doing to protect their investment in my property. I told her everything I just told you and she said to just send her the paper from the surveyor and she will somehow try to make everyone involved happy.

Just like that.

When did banks become so nice?

I don’t know if any of this information is reassuring to you if you’re in a similar predicament, but there are plenty of resources out there right now to help people make sense of this mess. Congress is currently discussing delaying the implementation of the Biggert-Waters Act, and the Amaden Gay Agencies insurance firm in East Hampton has a frequently updated blog on the changes to flood insurance. They’re urging people who have or will need flood insurance to make contact with a surveyor soon to determine their true flood risk.

Wright Flood has also prepared a guide for people affected by the insurance changes.

The best advice I can give you, as someone who is no expert in actuarial science or any of this madness, is to remember that knowledge is power. Once you know how high your new house  is above the base flood elevation (and this change primarily affects new homeowners), you will know a lot more about the true risk you will face in a flood. Hopefully, if you’re buying a house and getting a flood policy for the first time, you can now learn what your risk will be before you jump into a property that will literally be underwater if a flood comes again. That kind of crisis is worse than any mortgage crisis can be.