Flood insurance premiums jumping for thousands of Iowans

A law passed by Congress in 2012 to bring flood insurance premiums in line with the risk involved is going to hit thousands of businesses and homeowners in the Corridor and across Iowa with higher rates over the next several years.

The Biggert-Waters Flood Insurance Reform Act of 2012 requires the Federal Emergency Management Agency  to phase out insurance subsidies enjoyed for decades by owners of homes that were built in high-risk flood zones before the creation of the original federal flood insurance rate maps and building standards.

Congress passed the law in an effort to balance a $24 billion deficit in the National Flood Insurance Program, which had growing losses from Hurricane Katrina in New Orleans in 2005 and other disasters, including the flood of June 2008 in the Corridor.

Flood insurance premiums for homeowners with subsidized insurance on non-primary residences in the 100-year floodplain will increase 25 percent each year until the premiums reflect full risk rates.

The same will hold true for owners of business properties with subsidized premiums.

More than 1 million businesses and homeowners will be affected nationwide, according to Reuters.

The subsidized annual premium for a $100,000 single-family home where the basement is 6 feet below flood elevation is $1,204. Under the new law the annual premium will increase

to $3,881 for the same home, if an elevation certificate is provided by the homeowner.

Bill Cappuccio of the Iowa Department of Natural Resources said 44.8 percent of the flood insurance policies held by 16,653 Iowans with properties in the 10o-year floodplain will be affected by the higher rates.

"If they wanted to get a policy today, they would have to get an elevation certificate for the lowest floor in the building," Cappuccio said. "That will require the owner to have it surveyed if an elevation certificate is not on file with the city.

"If a flood insurance policy lapses or the property is sold, the premiums will reflect the full actuarial risk."

Cappuccio said the owners of primary residences will be able to keep their subsidy if they purchased their insurance policy before July 6, 2012. However, Congress has authorized FEMA to increase rates by as much as 20 percent per year.

"It's my understanding that if you look at the rates that will be in effect on Oct. 1, they will be approximately 16 percent higher than they were on Oct. 1, 2012," Cappuccio said.

Hit hardest by the rate hike will be people who bought a home with subsidized insurance after the law was passed on July 6, 2012. Those new buyers will have to pay full-risk rates starting Oct. 1.

Alex Trunnell, ?commercial lines manager at Millhiser Smith Agency in Cedar Rapids, said the problem of premiums not matching risk in the national flood insurance program has been known for decades.

"For years, they (Congress) kicked the can down the road, and we continued to have natural disaster after natural disaster," Trunnell said. "FEMA turned to the government for additional funding each year and it never got fixed.

"Now, it's going to affect the everyday guy, particularly those who own rental properties. They're going to have to pass it on to their tenants because some of them are going to see their rates go up hundreds of dollars a year.

"If you look at it from an actuarial standpoint, it's needed, but Congress wants to do it all at once."

Cappuccio and Trunnell advise checking with a policyholder's agent to determine the individual impact of the new law. A timeline providing some basic information is available online at http://smgs.us/3j4k.

Members of Congress from high-risk flood states want to delay the higher rates coming into effect so they can gather more information on the impact on property owners.