Flood coverage rates expected to keep rising

Hawaii residential property owners who carry flood insurance saw their premiums rise an average of 10 percent this year and likely will face an average increase next year of 6 percent to 7 percent.

But the premiums could have been a lot higher were it not for a law passed in 2014, according to Wes Brum, a senior flood underwriter for Honolulu-based First Insurance Co. of Hawaii.

Premiums on flood insurance, unlike other homeowner and auto insurance policies, are set by the federal government with the total premiums determined by a home’s location, the type of foundation the home has, and the year it was built. On average, the cost of an annual flood insurance policy ranges from around $450 to $4,000 for $250,000 in structure coverage. Adding $100,000 in contents coverage could bring the top of that range up to $8,000.

“The Homeowner Flood Insurance Affordability Act of 2014, which was passed by Congress and signed into law by President (Barack) Obama on March 21, 2014, was done with the intent to correctly align rates within the National Flood Insurance Program,” Brum said.

The 2014 law implemented a cap on flood rate increases at 18 percent versus there being no cap on rates under the Biggert Waters Flood Insurance Reform Act of 2012. That 2012 law led to premiums on flood insurance policies that, in some extreme cases, increased about 400 percent, Brum said.

“(It) caused chaos not only within the NFIP/FEMA (National Flood Insurance Program and the Federal Emergency Management Agency) flood insurance industry, but also for the real estate market and for lenders as well,” he said.

Know your zone

In a low-risk flood zone, which is referred to as flood zone X, structure coverage premiums range from around $450 to $799. In a so-called AE flood zone, which have a 1 percent annual chance of flooding, premiums range from around $500 to $10,000. And in a VE flood zone, which has a 1 percent annual chance of flooding with additional hazards due to storm-induced wave action, premiums range from around $800 to $20,000.

Brum said structures in Hawaii are almost even across the board in determining what flood zones they are located in. X flood zones are normally more inland, whereas VE flood zones are oceanfront structures and AE flood zones are normally either located behind the VE flood zone area or near rivers, streams and similar waterways, Brum said.

A property’s flood zone status can be determined by going to gis.hawaiinfip.org/fhat or calling 800-358-9616.

While most property owners who have flood insurance will see nominal increases in their premiums, about 1,000 property owners on Oahu should expect their premiums to jump 25 percent each year — depending upon the type of policy they carry — until the full risk rate for the structure is met, according to Brum.

Those property owners incurring the 25 percent sticker shock are the ones who were required to buy flood insurance in November 2014 for the first time after a remapping by FEMA put their land in a high-risk zone. The largest area affected included residences and businesses on the west side of Waimalu Stream below Moanalua Road. That area — including more than 160 parcels, the Waimalu Shopping Center, the Harbor Center, Goodwill and Best Buy — was previously classified as “undetermined risk” and property owners were not required to have federal flood insurance. Structures along the Halawa Stream and those near Kawainui Marsh near Coconut Grove in Kailua were also significantly affected by revisions.

End of grace period

Under the Newly Mapped Preferred Risk Policy, property owners were given a two-year break from paying a higher rate because they qualified for a preferred risk program. That’s because their land was reclassified from a low-risk flood zone to a high-risk flood zone. Those property owners were able to purchase $250,000 in structure coverage and $100,000 in contents coverage for $484 with a $1,000 deductible for each. Otherwise, the standard policy for them would have been $1,013 a year.

But now that two-year grace period has run its course.

“This Newly Mapped Preferred Risk Policy Program was designed to assist homeowners in transitioning from paying a low risk flood zone premium to now having to pay a high risk flood zone premium for their flood insurance policy,” Brum said.

Brum said FEMA does not redraw flood insurance rate maps to recoup any money paid out for catastrophic claims such as hurricanes; rather it works with community officials in each state to redraw flood maps after flood events occur and to also take into consideration erosion and other things.

“As new mapping technology is developed throughout the years and the world’s climate continues to change, so does the risk of flooding,” he said. “I want to make it clear that remapping is not done to penalize property owners or for FEMA to charge property owners more on their flood insurance policies. Remapping is completed to keep up with the world’s changing climate as best as possible. Simply put, as the world’s climate changes, so does a property owner’s risk of flooding.”