South Carolina homeowners who live in areas prone to flooding are nervous about changes to their insurance that mean some will pay more over the coming years— exponentially more in many cases.
At issue is the National Flood Insurance Program, which has been providing assistance for at-risk homeowners since 1968. By 2012, a series of hurricanes and floods around the nation had caused the program to run up an $18 million debt. In response, Congress passed the Biggert-Waters Flood Insurance Act last year and required homeowners to pay rates that more accurately reflect their property’s risk.
The changes began this past January, but will start to really make an impact in October. That’s when homeowners whose properties were grandfathered into the program will begin paying steeper premiums.
These are known as “subsidized” properties and cover buildings that were built before the Federal Emergency Management Administration began creating flood insurance rate maps in the late 1970s and early 1980s. The idea of the subsidized rates had been to protect homeowners who suddenly found their properties classified in high-risk areas.
However, Rep. Mick Mulvaney (R-SC) said the end result was that homeowners were paying unrealistically low rates thirty years later.
“Folks who lived off the coast were subsidizing folks who lived on the coast,” he told South Carolina Radio Network. “And a lot of us in both parties just didn’t think that was right. You shouldn’t ask people who live in relatively low-risk areas to help subsidize the folks who live in the very high-risk areas.”
Starting in October, those homeowners will begin gradually paying more each year (capped at a 25 percent increase per year) until their home eventually reaches the proper actuarial value. If they sell the property, the new owner must immediately begin paying at the full actuarial rate. Flood insurance is required for a property under mortgage.
“It’s typically going to be the older structures, those that were built prior to the first flood insurance rate maps,” said Lisa Jones, a consultant who owns Carolina Flood Solutions, LLC. “Those are the structures we’re talking about.”
Jones, the former state coordinator for flood mitigation at the South Carolina Department of Natural Resources, said many homeowners are confused and nervous about the changes. “It’s complicated and that’s why everybody’s panicking,” she said. “Everybody’s assuming that all the policies are subsidized. And that’s just not true.”
She said FEMA’s data indicates roughly 20,000 properties in South Carolina would be affected by the changes. The areas with the most affected structures are in Charleston, Georgetown, and Horry counties.
But by how much? That answer is not clear, because it largely depends on new flood maps set to be released by FEMA in 2014.
Ryan Castle with the Charleston Trident Association of Realtors said that’s leading to confusion and uncertainty. “It’s not like you get a bill that says your flood insurance would be ‘this,’ but you have a subsidized rate so it’s ‘this’ instead,” he said. “That’s not how they operate.”
He warned that many of the affected properties are not necessarily those located along the beachfront, but are actually situated further back from the ocean or along a river.
Jones said one of the biggest factors would be the structure’s elevation. For example, a home built on stilts would likely have lower rates than a neighboring home that is situated closer to the ground.
Castle did say, however, that subsidized homeowners currently paying hundreds of dollars per year in premiums can expect to pay in the thousands eventually.
“The key is just to talk to your insurance agent about your flood insurance policy and know what your rates will be next year,” he said.
Congress is currently considering a proposal that would delay the changes for a year to give homeowners more time to prepare. The legislation pushed by lawmakers representing more flood-prone and coastal districts cleared the House 281-146 in June. It awaits a vote in the Senate.
South Carolina’s delegation was split. Reps. Jim Clyburn, Tom Rice, and Mark Sanford voted in favor of the delay. Mulvaney opposed and was joined by Reps. Jeff Duncan, Trey Gowdy, and Joe Wilson.
Sanford said he wants to wait until the new flood maps come out. “It didn’t make sense to me to put the premiums before the maps,” he told a realtors town hall last month, according to the Charleston Regional Business Journal.
Mulvaney said he wants to see the changes stay in place. “At the end of the day you have to ask yourself, if you want to build in a high-risk area, who should pay for that risk? You or somebody else?”