Despite recent news coverage of catastrophic Florida sinkholes, many Floridians and their Gulf Coast neighbors are far more concerned these days with a frightening rise in flood insurance rates than with the remote possibility of ground collapse.
If you've been following the misadventures of the National Flood Insurance Program, or NFIP, two things are patently obvious: It's the only game in town for most homes in coastal and flood-prone inland areas because standard homeowners insurance doesn't cover flood damage; and the program is some $20 billion in the red, mostly due to losses from Hurricane Katrina in 2005.
End-of-the-line for subsidized rates
Those who recognize the name Biggert-Waters Act, passed by Congress last year, may be vaguely aware that the law is designed to shore up the NFIP. How? By allowing the program to buy reinsurance, just like other property and casualty companies, and replace its low, subsidized premium rates on decades-old homes in "Special Flood Hazard Areas" with actuarially-sound (and way more expensive) ones.
There's the rub. Under the act, any home or business in a high-risk area will lose its NFIP subsidy Oct. 1. Any NFIP-insured home sold after the act was signed in July 2012 has already lost its subsidized rate, sometimes leaving the new buyers with quite a housewarming present.
A front-page Tampa Bay Times story this week details the rate shock that Cristy and Fred Assidy experienced recently after they moved into their new home in St. Petersburg, Fla.
The story says during this first year, their premium through the National Flood Insurance Program is a "doable" $1,700. But next year it jumps to $17,000 -- for a house they purchased for $205,000.
For those not planning to move, Biggert-Waters takes on more of a waterboarding feel, with premiums expected to increase 20 percent each year for five years, on average, until they reach the "actuarially-sound" level. If you sell your home or let your flood policy lapse, the rate immediately jumps to the full risk-based level, adding thousands to the premium for an unsuspecting buyer or a delinquent homeowner.
The big question for many is: Can I afford to live in my home -- and, failing that, can I find a buyer who could? Real estate agents in particular warn that the flood rate re-deal could endanger an already fragile home market recovery, especially in Florida, which has 40 percent of all flood policies nationwide.
Even the bill's co-sponsor, U.S. Rep. Maxine Waters (D-Calif.), isn't pleased with what she calls the unintended consequences of her well-meaning legislation. In a letter to the Federal Emergency Management Administration, which oversees the NFIP, Waters asks for a review, noting that the adjusted rates are "unaffordable'' and will have "devastating impacts'' that will "force families out of their homes."
In June, the U.S. House passed legislation to block implementation of Biggert-Waters. Anxious homeowners are now hoping the U.S. Senate will follow suit and at least delay the law's rollout.
"Congress has essentially changed the rules in the middle of the game," writes Tampa Bay Times columnist John Romano. "You can't provide subsidized insurance for decades, then pull the rug out from under people in a matter of months."
Any readers out there been caught in these rising flood rates?
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Jay MacDonald is a Bankrate contributing editor and co-author of "Future Millionaires' Guidebook," an e-book by Bankrate editors and reporters.