Raises to soak owners

Thousands of Hawaii property owners are about to be hit with a flood of higher premiums.

About 20,000 people who carry flood insurance will see their annual policies increase an average 19.8 percent beginning today under changes to the National Flood Insurance Program. That means property owners who are paying about $1,000 a year for flood insurance will see their bills go up about $200 while those now paying about $5,000 will see their premium increase to nearly $6,000.

The premium increase is to help make the Federal Emergency Management Agency, or FEMA, whole again. FEMA, which administers the flood insurance program, is trying to recoup $24 billion it owes the U.S. Treasury in the wake of payouts made for Hurricane Ka­trina ($108 billion in property damage) on the Gulf Coast and Hurricane Sandy ($68 billion in damage) on the Atlantic coast.

"This is going to catch a lot of people by surprise, mainly because of the increased fees and surcharges being added to the policy," said Wes Brum, senior flood underwriter for First Insurance Co. of Hawaii, the largest flood insurance carrier in the state with a 42 percent market share. "Unfortunately there’s nothing they can do about it."

The premium increase was mandated by Congress. It includes surcharges and fees being added to the flood insurance policies.

"Once those surcharges and fees are added on, policyholders will see an average 19.8 percent increase in total premium," Brum said Monday.

Under the new rules, a $25 Homeowners Flood Insurance Affordability Act surcharge was implemented on all primary residence policies and a $250 surcharge assessed for all other policies, which includes secondary residences.

The Reserve Fund Assessment Fee, which is used to build a catastrophic reserve fund, is increasing to 15 percent from 5 percent for all policies except the preferred risk policy, which is increasing to 10 percent from 0 percent.

The Federal Policy Fee, which is used to defray administrative expenses in carrying out the National Flood Insurance Program, will remain at $22 for preferred risk policies but for all other standard policies will go up by $1, to $45.

New minimum and maximum deductibles were established that range from $1,000 to $2,000 depending on the amount of coverage purchased, and a new maximum deductible of $10,000 will be available to residential policyholders as of today.

Realtor Ira Gordon, principal broker of Aloha Homes, said Tuesday he wasn’t aware of the pending flood insurance increase.

"Nobody wants to pay increases in rates, but if it’s necessary and the money is used to reimburse for legitimate expenses, what choice do we have?" he asked. "But the problems that I find is that the system is administered very poorly, and you don’t get reimbursed for what you should be reimbursed. So it’s a double whammy."

Gordon, who lives at Century Center in Hono­­lulu, said in 2006 a FEMA adjustor greatly undervalued the replacement cost for the common areas at the building following a flood that overflowed from Kala­kaua Avenue and a canal at the rear of the property. Gordon said he subsequently felt compelled to purchase flood insurance to cover the contents of his ground-floor unit. As a result of the flooding, the Century Center owners association purchased and installed a dam system to prevent large flooding from entering the building.

Gordon, vice president of the board of directors at Century Center, said higher flood insurance policies also could affect pending sales of Hawaii properties.

"There are people right now in escrow that are going to close in the next few weeks, and if this thing is effective (today), the flood insurance rate they’re going to be charged is going to be increased, and it’s going to be a surprise," he said. "When you’re buying a property, flood insurance doesn’t transfer — just like you have to get a new homeowner’s policy. That’s why there should be advance notice of these things happening."

An average flood insurance policy for a property in a high-risk area can range anywhere from $2,000 to $5,000 or more, according to Brum. For a property in the lowest-risk area, the average flood insurance premium is $465. A standard flood insurance policy covers $250,000 for a one- to four-family structure and $100,000 for a building’s contents.

"If that $5,000 premium increased by 19.8 percent, that’s basically another $950 being added to the policy, which is a pretty substantial increase," Brum said. "It goes into effect for all new and renewing NFIP (National Flood Insurance Program) flood insurance policies" today.

In some cases the financial bite will be even worse since 19.8 percent is just the average. For structures built prior to Sept. 3, 1980, that are in a high-risk flood zone, a primary residence will see an average 15 percent increase while a nonprimary residence will be hit with a whopping 37 percent increase.