There’s another reason for property owners to be watching the cost on their insurance policies.
While a proposed increase in homeowner insurance rates in North Carolina has gained much public attention, many policyholders for the National Flood Insurance Program could also see their premiums increasing due to recent changes.
And the impact could be greater than that of the proposed homeowners insurance rate increase, said Spencer Rogers of North Carolina Sea Grant.
“This one for some property owners could be more expensive than the wind insurance,” he said.
Rogers, the coastal hazards specialist for Sea Grant, has worked with property owners as well as local, state and federal officials on floodmapping and recommendations for new construction and mitigation efforts for existing structures in and near flood zones.
He has reviewed changes in federal law that impact property owners in North Carolina and across the county.
The Biggert-Waters Flood Insurance Reform Act took effect July 1; and as the changes are implemented some will see their premiums increase, particularly for policyholders impacted by two “grandfather” clauses that have been removed from the legislation.
One clause applies to buildings that were constructed before Dec. 31, 1974, or the initial Flood Insurance Rate Map adopted for a community and removes subsidized rates that had been in place for many policy holders.
While the reform act leaves subsidized rates in place for primary residences, buildings such as second homes, rental properties, commercial building or older home that are purchased by new owners, will see rates increase 25 percent until the actuarial rates are reached.
“One of the uncertainties is what the actuarial rates will be,” Rogers said.
The removal of the second grandfather clause means that all buildings will now be rated using the latest maps; and when the maps change, rate increases will be phased in at the time of each policy renewal over the next five years.
Previously, premiums could be calculated based on the latest flood map requirement or the map in place at the time of construction, whichever was most favorable for the policy holder.
Rogers has created a table to estimate the eventual premium increases.
If a building was constructed to the minimum base flood elevation in the AE zone, a $100,000 building with $40,000 worth of contents would have a premium of $1,458. But, as an example, if maps raise the elevation by one foot, the premium would go up to $3,844.
For higher coverage or as buildings are further out of compliance, annual premiums could rise by tens of thousands for some.
Rogers said many elevated homes may already be close to the base flood elevations, but Rogers said the premium increases could particularly impact buildings that are elevated but have the area below the foundation enclosed and used it as living space.
Policy holders are encouraged to seek professional review of their policies to see how the changes may impact them.
Rogers said the Reform Act makes changes in the National Flood Insurance Program to increase the cost of insurance to offset the high losses incurred by the program, primarily due to Hurricane Katrina.