Occasionally, I get questions about flood insurance, particularly from buyers looking for a second home at the shore. I usually send them to FEMA’s website. But, I do know one thing: premiums on flood insurance have gone up exponentially, particularly since Hurricane Sandy. One friend has a home at the Jersey Shore where he’s been paying about $3,000/year for flood insurance. His insurer told him to prepare for that to go over $30,000 unless he gets his home out of flood plain --- something that could be extremely costly. That made me start thinking about whether insurance practices are regulated in ways other than other businesses. It turns out that, like most government programs, there’s a great deal of red tape, and a whole lot of mismanagement.
Before 1950, flood insurance was included in all homeowners’ insurance policies. It wasn’t until companies began getting slammed with payouts that they decided to charge separately for flood insurance. But, by the ‘60s, flood insurance became a liability to insurers, so they stopped providing it. Property owners were then their own.
The National Flood Insurance Program (NFIP) was created by Congress, in 1968, and overseen by the GAO --- the U.S. Government Accountability Office (sounds like an oxymoron, no?). The idea was to make flood insurance available to homes designated in 100 or 500-year flood plain at a cost that was supposed to be far less than what disaster relief would cost. Unfortunately, since the late ‘80s, NFIP has paid almost $40 billion in claims (with more than 40% going to Louisiana alone). From 1978- the Flood Insurance Reform Act of 2004, amendment after amendment sought to stem the outpouring of money to victims of floods.
In 2012, a law called the Biggert-Waters Act proposed an end to federal subsidies to insure properties in flood prone areas. Hurricanes over the last decade drove federal aid programs into a $24 billion ditch. Homeowners were getting financially gutted by soaring insurance premiums ten times the amount they had previously paid. Meanwhile, they watched their homes continue to lose value as the economy struggled for stability.
As far as rebuilding or elevating a home to remove it from flood plain status, FEMA offers the following advice:
* Get all the information available about local and state codes. Local jurisdictions can be more restrictive than the National Flood Insurance Program.
* Elevating a home can be an enormous and expensive undertaking: it means raising the lowest floor above the flood protection elevation (FPE), a level at which the chance of flooding is diminished or eliminated. The house is separated from its foundation, raised on hydraulic jacks and held up by temporary supports while the new foundation is built below.
Depending on the size of the home, the ease of getting equipment on the property, and the extent of raising the elevation, the cost can be anywhere from $70k to hundreds of thousands. The cost/benefit analysis will determine your next steps.
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