Can You Get Insurance?

We get a lot of calls about whether you can get insurance on Dewees Island.  Full disclaimer: I am not an insurance broker and I am not a lawyer.  The following information is not a guarantee of insurance prices, nor is it a guarantee of coverage. Having a fire station on the island, with an emergency first responder on duty, helps with homeowners insurance rates.  In addition, homes on the island are required to have sprinkler systems, be hardwired into the 911 notification system, and have storm protection plans.   That said, here’s everything you wanted (and didn’t want) to know about insurance on Dewees Island. You can see how residents prep for storms here.

On Dewees, we carry insurance, which we buy from brokers.  When you put a lot or house under contract, as part of your due diligence, you can ask for an insurance quote.  I’ll even send you a list of brokers who are familiar with Dewees. I also recommend that residents get their Dewees Island insurance re-quoted each year, as well, because there are often more players in the insurance game, and homeowners have recently found that their bills are decreasing. Flood Insurance is required if you have a lender.  At the bottom of this post is a bunch of information and links to sites with more about insurance.

Mappus Insurance in Charleston has this handy video and information.

When obtaining your Dewees Island Insurance, you’ll consult flood-hazard maps.  Flood-hazard maps have been created to show different degrees of risk for the community, which help determine the cost of flood insurance. The lower the degree of risk, the lower the flood insurance premium. Along the coast, storm surge is often the greatest threat to life and property from a hurricane. Storm surge is an abnormal rise of water generated by a storm, over and above the predicted astronomical tides. Storm surge should not be confused with storm tide, which is defined as the water level rise due to the combination of storm surge and the astronomical tide. This rise in water level can cause extreme flooding in coastal areas particularly when storm surge coincides with normal high tide, resulting in storm tides reaching up to 20 feet or more in some cases.

As you move northward along the Atlantic coast, tidal ranges grow, reaching five feet in the New York area and up to eight feet in New England. And the switch from high to low tide is twice as frequent—typically every six hours in the Northeast but every 12 hours along the Gulf Coast. As a result, the impact of a hurricane storm surge is much more sensitive to the timing of landfall in New York than it would be in the Gulf of Mexico.

HIGH-RISK AREAS (SPECIAL FLOOD HAZARD AREA OR SFHA): In high-risk areas, there is at least a 1 in 4 chance of flooding during a 30-year mortgage. All home and business owners in these areas with mortgages from federally regulated or insured lenders are required to buy flood insurance. They are shown on the flood maps as zones labeled with the letters A or V.

MODERATE-TO-LOW RISK AREA (OR NSFA): In moderate-to-low risk areas, the risk of being flooded is reduced but not completely removed. These areas submit over 20% of NFIP claims and receive one-third of disaster assistance for flooding. Flood insurance isn’t federally required in moderate-to-low risk areas, but it is recommended for all property owners and renters. They are shown on flood maps as zones labeled with the letters B, C or X (or a shaded X).

UNDETERMINED-RISK AREAS No flood-hazard analysis has been conducted in these areas, but a flood risk still exists. Flood insurance rates reflect the uncertainty of the flood risk. These areas are labeled with the letter D on the flood maps.

A Flood Insurance Rate Map (FIRM) is the official map of a community on which FEMA has delineated both the special hazard areas and the risk premium zones applicable to the community.

Flood hazard maps identify areas of the landscape that are sub­ject to flooding, usually flooding by the 1-percent-annual-chance flood, also called the Base Flood Elevation (BFE).  Maps prepared by the National Flood Insurance Program (NFIP) are the minimum basis of State and local floodplain regulatory programs. Some states and communities have prepared maps of a floodplain based on the assumption that the upper watershed area is fully developed according to existing zoning. Some communities base their regu­lations on a flood of record or a historically significant flood that exceeds the base flood shown on the NFIP maps.

The flood hazard maps used by the appropriate regulatory au­thority should be consulted during planning and site selection, site design, and architectural and engineering design (whether for the design of new buildings or rehabilitation of existing buildings). Regardless of the flood hazard data required for reg­ulatory purposes, additional research should be conducted on past major floods and other factors that could lead to more se­vere flooding.

Base Flood Elevation (BFE) is the computed elevation to which floodwater is anticipated to rise during the base flood. BFEs are shown on FIRMs and on the flood profiles. The BFE is the regulatory requirement for the elevation or flood proofing of structures. The relationship between the BFE and a structure’s elevation determines the flood insurance premium.

Flood-hazard maps have been created to show different degrees of risk for your community, which help determine the cost of flood insurance. The lower the degree of risk, the lower the flood insurance premium.

A Zones: (also called “unnumbered A Zones” or “approximate A Zones”). This designation is used for flood hazard areas where engineering analyses have not been performed to develop detailed flood elevations. Base flood eleva­tions (BFEs) are not provided. Additional engineering analyses and site-specific assess­ments usually are required to determine the design flood elevation.

AE Zones or A1-A30 Zones: (also called “num­bered A Zones”). These designations are used for flood hazard areas where engi­neering analyses have produced detailed flood elevations and boundaries for the base flood (1-percent-annual-chance flood). BFEs are provided. For riverine waterways with these zones, FISs include longitudinal profiles showing water surface elevations for different frequency flood events.

Floodways: The floodway includes the waterway channel and ad­jacent land areas that must be reserved in order to convey the discharge of the base flood without cumulatively increasing the water surface elevation above a designated height. Floodways are designated for most waterways that have AE Zones or num­bered A Zones. FISs include data on floodway widths and mean floodway velocities.

AO and AH Zones: These zones include areas of shallow flooding and are generally shown where the flood depth averages from 1 to 3 feet, where a clearly defined channel does not exist, where the path of flooding is unpredictable, and where velocity flow may be evident. These zones are characterized by ponding or sheetflow. BFEs may be provided for AH Zones; flood depths may be speci­fied in AO Zones.

Shaded X (or B) Zones: This zone shows areas of the 500-year flood (0.2-percent-annual-chance flood), or areas protected by flood control levees. This zone is not shown on many NFIP maps; its ab­sence does not imply that flooding of this frequency will not occur.

Unshaded X (or C) Zones: These zones are all land areas not mapped as flood hazard areas that are outside of the floodplain and des­ignated for the purposes of regulating development pursuant to the NFIP. These zones may still be subject to small stream flooding and flooding from local drainage problems.

V Zones (V, VE, and V1-V30): Also known as coastal high-hazard areas or special flood hazard areas subject to high-velocity wave ac­tion. V Zones are relatively narrow areas along open coastlines and some large lake shores that are subject to high-velocity wave ac­tion from storms or seismic sources. V Zones extend from offshore to the inland limit of a primary frontal dune, or to an inland limit where the height of breaking waves drops below 3 feet.

Coastal A Zone: This zone, which is not delineated on NFIP maps, is where the potential of breaking wave heights is between 1.5 feet and 3 feet during base flood conditions. Coastal A Zones are landward of the mapped V Zone, or landward of open coasts that do not have a V Zone because breaking waves are predicted to be less than 3 feet high. In these areas, the principal sources of flooding are tides, storm surges, seiches, or tsunamis, not riverine flooding.

Flood hazards and characteristics of flooding must be identified to evaluate appropriately the impact of site development, to calculate flood loads, to design flood proofing mea­sures, and to identify and prioritize retrofit measures for existing critical facilities.

FEMA rates risk area in several categories. Special Flood Hazard Areas (SFHA), Coastal High Hazard Area (CHHA), Moderate and Minimal Risk Area and Undetermined.  The rating will determine the flood insurance premiums to be paid.  The FEMA-produced chart shown below illustrates the criteria for each zone.

Coastal High Hazard Areas (CHHA) represent the area subject to inundation by 1-percent-annual chance flood, extending from offshore to the inland limit of a primary frontal dune along an open coast and any other area subject to high velocity wave action from storms or seismic sources. Structures located within the CHHA have a 26-percent chance of flooding during the life of a standard 30-year mortgage. Federal floodplain management regulations and mandatory purchase requirements apply in these zones.

In communities along the Gulf and Atlantic coasts, facility owners, planners, and designers should check with emergency management offices for maps that estimate storm surge flooding from hurricanes. Local planning or engineering offices may have post-disaster advisory flood maps and documentation of past storm surge events. The FIRMs and regulatory design flood elevations (DFEs) do not reflect low probability/high magnitude flooding that may result from a hurricane making landfall at a specific location.

The Design Flood Elevation (DFE) establishes the minimum level of flood protection that must be provided. The DFE, as used in the model building codes, is defined as either the Base Flood Elevation (BFE), determined by the NFIP and shown on FIRMs, or the elevation of a design flood designated by the com­munity, whichever is higher. The DFE will always be at least as high as the BFE. Base flood elevation is the elevation above a datum to which floodwaters are predicted to rise during the 1-percent-annual-chance flood (also called the “base flood” or the 100-year flood).

Changing weather patterns, erosion, and development can affect floodplain boundaries. FEMA is currently updating and modernizing the nation’s Flood Insurance Rate Maps (FIRMS).

FEMA has published almost 100,000 individual Flood Insurance Rate Maps (FIRMs).  Copies of the maps may be obtained from http://www.msc.fema.gov. Learn how to read it so you can make informed decisions about protecting your property, both financially and structurally.

Using the FEMA site you can obtain issued flood maps, which will determine your FEMA ID number or obtain a site kit.  You may also be able to obtain this information at your local tax assessment office.   You will need your six digit community code in order to obtain a map from the map service center.

The National Flood Insurance Program (NFIP) http://www.fema.gov/national-flood-insurance-program was created as a result of the passage of the National Flood Insurance Act of 1968.  Congress enacted the NFIP for the purpose of enabling property owners in participating communities to purchase insurance protection from the government against losses from flooding. This insurance is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing damage to buildings and their contents caused by flooding. It insures about 5.5 million homes, the majority of which are in coastal areas of Texas and Florida.

The NFIP is a Federal program, managed by the Federal Emergency Management Administration (FEMA), and has three components: to provide flood insurance, to improve floodplain management and to develop maps of flood hazard zones.

In March of 2014, the president of the United States Senate signed the Homeowner Flood Insurance Affordability Act of 2014 (S. 1926; 113th Congress). That bill would delay the increases in flood insurance premiums that were part of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12).  The Biggert-Waters Act of 2012 mandated that the NFIP charge actuarial rates, resulting in a large rate increase for consumers. The reforms are intended to require flood insurance premiums to actually reflect the real risk of flooding, which led to an increase in premiums. According to FEMA, the law lowers the rate increases on some policies, prevents some future rate increases, and implements a surcharge on all policyholders. It also repeals certain rate increases that have already gone into effect and provides for refunds to those policyholders.

FEMA does not recommend cancelling current flood insurance policies as the intent is to adjust the rates no more than 25% annually rather than the “all at once” catch-up policy of the past when a property changes ownership.

Briefly, the changes and points to consider include:

• The new law lowers the recent rate increases on some policies, prevents some future rate increases, and implements a surcharge on all policyholders. The Act also repeals certain rate increases that have already gone into effect and provides for refunds to those policyholders. The Act also authorizes additional resources for the National Academy of Sciences (NAS) to complete the affordability study.
• FEMA looks forward to working with Congress, the private Write Your Own insurance companies, and other stakeholders to implement these congressionally mandated reforms and to working toward their shared goals of helping families maintain affordable flood insurance, ensuring the financial stability of the NFIP, and reducing the risks and consequences of flooding nationwide. FEMA will also continue to identify and publish special flood hazards and flood risk zones as authorized and required by Congress.
• FEMA has actively begun analyzing and prioritizing implementation of the new law. They will be working with the private Write Your Own insurance companies to seek their input and expertise prior to issuing business practice bulletins.
• The new law does require some changes to be made retroactively, applying to certain policies written after July 6, 2012.  Other changes require establishment of new programs, processes and procedures.
• FEMA’s initial priority is assessing potential changes to the NFIP’s business processes to stop policy increases for certain subsidized policyholders as outlined in the Act.
• FEMA also plans to issue guidance in the months ahead for the Write Your Own insurance companies to begin issuing refunds as outlined in the law for some policyholders who were previously impacted by subsidy phase outs.
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The new law requires gradual rate increases to properties now receiving artificially low (or subsidized) rates instead of immediate increases to full-risk rates required in certain cases under BW-12.

FEMA is required to increase premiums for most subsidized properties by no less than 5 percent annually until the class premium reaches its full-risk rate. It is important to note that close to 80 percent of NFIP policyholders paid a full-risk rate prior to either BW-12 or HFIAA, and are minimally impacted by either law.

With limited exceptions flood insurance premiums cannot increase more than 18 percent annually.

• There are some exceptions to these general rules and limitations.  The most important of these exceptions is that policies for the following properties will continue to see up to a 25 percent annual increase as required by BW-12 until they reach their full-risk rate;
• Older business properties insured with subsidized rates;
• Older non-primary residences insured with subsidized rates;
• Severe Repetitive Loss Properties insured with subsidized rates;
• Buildings that have been substantially damaged or improved built before the local adoption of a Flood Insurance Rate Map (known as Pre-FIRM properties).

In order to enable new purchasers of property to retain Pre-FIRM rates while FEMA is developing its guidelines, a new purchaser will be allowed to assume the prior owner’s flood insurance policy and retain the same rates until the guidance is finalized. Also, lapsed policies receiving Pre-FIRM subsidized rates may be reinstated with Pre-FIRM subsidized rates pending FEMA’s implementation of the rate increases required by the Homeowner Flood Insurance Affordability Act.

The new law requires gradual rate increases to properties now receiving artificially low (or subsidized) rates instead of immediate increases to full-risk rates required in certain cases under BW-12.

FEMA is required to increase premiums for most subsidized properties by no less than 5 percent annually until the class premium reaches its full-risk rate. It is important to note that close to 80 percent of NFIP policyholders paid a full-risk rate prior to either BW-12 or HFIAA, and are minimally impacted by either law.

With limited exceptions flood insurance premiums cannot increase more than 18 percent annually.

• There are some exceptions to these general rules and limitations.  The most important of these exceptions is that policies for the following properties will continue to see up to a 25 percent annual increase as required by BW-12 until they reach their full-risk rate;
• Older business properties insured with subsidized rates;
• Older non-primary residences insured with subsidized rates;
• Severe Repetitive Loss Properties insured with subsidized rates;
• Buildings that have been substantially damaged or improved built before the local adoption of a Flood Insurance Rate Map (known as Pre-FIRM properties).

In order to enable new purchasers of property to retain Pre-FIRM rates while FEMA is developing its guidelines, a new purchaser will be allowed to assume the prior owner’s flood insurance policy and retain the same rates until the guidance is finalized. Also, lapsed policies receiving Pre-FIRM subsidized rates may be reinstated with Pre-FIRM subsidized rates pending FEMA’s implementation of the rate increases required by the Homeowner Flood Insurance Affordability Act.

• The new law permits FEMA to account for property specific flood mitigation that is not part of the insured structure in determining a full-risk rate.
• The law requires that residential basement floodproofing be considered when developing full-risk rates after a map changes increasing the Base Flood Elevation in an area where residential basement floodproofing is permitted.
• The law mandates that FEMA develop an installment plan for non-escrowed flood insurance premiums, which will require changes to regulations and the Standard Flood Insurance Policy contract.
• The law increases maximum deductibles.
• The law encourages FEMA to minimize the number of policies where premiums exceed 1-percent of the coverage amount, and requires FEMA to report such premiums to Congress.

• The new law requires FEMA to prepare a draft affordability framework, which is due to Congress 18 months after completion of the affordability study required by BW-12. The Affordability Study required by BW-12 is underway and is being conducted by the National Academies of Sciences, as specified in the BW-12 law.
• In developing the affordability framework, FEMA must consider:
  • accurate communication to customers of the flood risk,
  • targeted assistance based on financial ability to pay,
  • individual and community actions to mitigate flood risk or lower cost of flood insurance,
  • the impact of increases in premium rates on participation in NFIP,
  • and the impact of mapping update on affordability of flood insurance.
• The affordability framework will include proposals and proposed regulations for ensuring flood insurance affordability among low-income populations.

For more information on this you can also refer to the National Association of Realtors® for a video.  The NAR video demonstrates how bill impacts flood insurance rates:http://www.realtor.org/videos/help-passed-on-flood-insurance-rates.

• If a broker or agent determines that it is necessary to make disclosures to buyers regarding flood insurance, as described above, he should also advise buyers that, as a result of the B-W Act, flood insurance rates are likely to be higher than in the past. Although the amount of such rate increases may be lower than they would have otherwise been under the B-W Act alone, increases will nevertheless be implemented with the goal of reaching full market based premium amounts in time.

NAR guidance on flood insurance: document to be edited available at Realtor.com

Homeowners’ insurance policies (also called hazard insurance) do not cover flooding – only a separate insurance product can protect against flood damage. Flood insurance is usually optional for mortgaged homeowners in what are normally considered low-risk flood areas. It may even be optional for mortgaged homeowners in high-risk flood areas, depending on the mortgage product. However, homeowners who take out a mortgage from a lender that is federally regulated or insured (such as an FHA mortgage) and buy a home in a high-risk flood zone (also known as a Special Flood Hazard Area) will be required to buy flood insurance. In most cases, the homeowner will have to pay for flood insurance every year until the mortgage is paid off.

When someone takes out a mortgage, the home is used as collateral if the borrower stops making mortgage payments. When a property is financed, the lender often has a greater financial stake in the property than the borrower. If one of the lender’s assets is damaged by flood waters and the borrower abandons the home and stops making mortgage payments, the lender is caught in a losing position. To eliminate this risk, many lenders require the homeowner to purchase flood insurance. They may also require escrow for the flood insurance premiums at closing and a subsequent waiting period.

V Zones (V, VE, and V1-V30): Also known as coastal high-hazard areas or special flood hazard areas subject to high-velocity wave action. V Zones are relatively narrow areas along open coastlines and some large lake shores that are subject to high-velocity wave action from storms or seismic sources. V Zones extend from offshore to the inland limit of a primary frontal dune, or to an inland limit where the height of breaking waves drops below 3 feet.

Coastal A Zone: This zone, which is not delineated on NFIP maps, is where the potential of breaking wave heights is between 1.5 feet and 3 feet during base flood conditions. Coastal A Zones are landward of the mapped V Zone, or landward of open coasts that do not have a V Zone because breaking waves are predicted to be less than 3 feet high. In these areas, the principal sources of flooding are tides, storm surges, or tsunamis.

Flood hazards and characteristics of flooding must be identified to evaluate appropriately the impact of site development, to calculate flood loads, and to design flood-proofing measures.

(http://www.investopedia.com/articles/insurance/10/understanding-lender-required-flood-insurance.asp)

The cost to insure a property against flood damage is determined by risk associated factors such as the year of building construction, number of floors, level of flood risk and the amount of coverage required by the lender. This amount should be based on the cost to rebuild, which can be obtained from your client’s homeowners insurance company.

The price to insure a property with a particular deductible and particular amount of coverage will be the same no matter who your client choses as their insurer because flood insurance premiums are government regulated.

However, the owners do have some control over the cost of their policy because they can choose their deductible amount. Deductibles apply separately to building and contents with different amounts to choose from. Like other insurance plans, a higher deductible will lower the premium you’re a homeowner will pay but will also reduce the claim payment. The mortgage lender may also set a maximum amount for the deductible that may be chosen.

To find out how much flood insurance will cost for your client’s residence specifically, they need to complete the flood risk profile on the FEMA website and contact one of the participating insurance agents listed. The website only gives an approximate range of possible coverage costs. An insurance agent can provide an accurate quote. Your client can still get a quote even if they are just looking at the property and don’t have it under contract. In general, they should expect to pay at least a few hundred dollars for flood insurance.

The maximum insurance amount allowed by law is $250,000 for the structure. Contents coverage is optional (not required by lender) – but it costs extra and is limited to $100,000.