Calm before the storm: Flood insurance could get messy over summer

Flood premiums are rising again this month in a dreaded springtime ritual, with homeowners seeing anywhere from 5 percent up to 25 percent increases in worst-case scenarios.

While an average hike of 8 percent might seem alarming to some homeowners, the big question that still looms is how much more prices will go up come July 31, the deadline for action on the federal flood insurance program -- or whether that deadline will be met at all.

"The only concern I have is the date," said Patty Latshaw, principal flood coordinator at Wright National Flood Insurance Co. "It affects so many people, and it's hard to see it right smack in the middle of hurricane season."

After half a dozen temporary extensions, Congress now has until the end of July to renew the National Flood Insurance Program, a government-run program that is the main vehicle for buying flood insurance.

As of the beginning of the month, rates for flood insurance went up from $866 on average to $935. That amounts to about an 8 percent hike, though most homeowners' policies will increase about 5 percent.

Ahead of the deadline, there are three possible outcomes: the NFIP is renewed long term -- at least five years -- likely with some changes; Congress pushes off a decision for another short period, saving renewal for after the 2018 midterm elections; or the NFIP is left to lapse.

In a worst-case scenario where the NFIP is left to lapse, that means no new policies will be written until action is taken, new and prospective homeowners will be the first to feel the effects.

Flood insurance is required for most mortgages in designated flood zones. If someone buys a home in such a zone and the NFIP lapsed before they closed on the house, they would not be able to get a flood insurance policy, and thus not be able to go through with the sale.

A similar issue would hit homeowners whose policies expire after July 31. They would not be able to renew their policies with the NFIP, causing a lapse in coverage.

In a less-dire scenario, if the price of flood insurance goes up significantly, home values could decrease, making it difficult for sellers.

Jon Gentile, vice president of government relations for the National Association of Professional Insurance Agents, said consumers are right to be mildly concerned.

"If you're a homeowner or business owner, there's uncertainty right now with whether Congress will provide a long term reauthorization," Gentile said. "Consumers certainly have a right to be concerned."

One change may be in how the NFIP interacts with the private flood insurance market.

The Federal Emergency Management Agency, private insurers and insurance companies such as Wright -- which has the largest number of NFIP policy holders in the country -- are pushing for Congress to require banks to recognize all flood insurance policies, including those from private insurers. This, they say, gives consumers more choices to satisfy the mandatory coverage.

Currently, it's difficult for a homeowner who receives subsidized rates to switch between being covered by the NFIP and a private flood insurer without losing that reduced rate.

That's because if their mortgage requires continuous flood insurance coverage, it is only considered continuous by the NFIP if it is issued through the NFIP. Even if that homeowner had a policy with a private insurance company for a year, it wouldn't be counted by the federal program, pushing that homeowner up to higher rates.

Most properties affected by this are called "pre-FIRM," or properties that were built before the first flood insurance rate maps were put into place in 1975. If those property owners had been with NFIP consistently, their rate increases would have been more gradual than trying to get back into the federal program. Only about 20 percent of policies under the NFIP are subsidized, which includes pre-FIRM.

"This is the unintended consequences of what Congress passed and what FEMA has to mandate," Latshaw said.

Under the rates effective April 1, those properties -- as long as they weren't the owner's primary residence -- saw a 25 percent rate increase. The rates will continue to increase by 25 percent until they reach what is considered an actuarially sound price.

Now is not the time for panic, said Robin Sollie, head of the Tampa Bay Beaches Chamber of Commerce. July 31 is still a ways off, and until legislation is passed or close to being passed, the stakes are not clear.

"It's just been a bit quiet because it has been in a holding pattern and I don't think really it's going to get a sense of urgency until we get closer to an expiration," Sollie said.

Shore Acres, a waterfront community in Pinellas County, is likely to be among the most affected by flood insurance changes. The low-lying community routinely floods during the summer rainy season, and in 2016, 65 to 92 percent of homes in the community qualified for subsidized flood insurance rates.

And the issue may be in the back of residents' minds right now because of the deadline extension. Sollie said she hasn't been approached by any of the residents in her area about flood insurance recently.

Contact this reporter at mcarollo@tampabay.com or (727) 892-2249. Follow @malenacarollo.

Going into hurricane season, here's some advice from experts:

• Consider flood insurance even if your home is not specifically in a flood zone. Heavy rain could bring inland flooding not covered by a standard homeowners insurance policy.

• Flood insurance coverage through the NFIP takes about 30 days to go into effect.

• Private insurers may put a moratorium on writing new policies depending on how close a storm is to landfall, which could prevent a new homeowner from getting coverage.