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Law on flood coverage will allow higher rates to flow in

Hawaii policyholders won't be socked by huge increases right now, but premiums will still rise dramatically over time

By Associated Press

LAST UPDATED: 02:33 a.m. HST, Mar 24, 2014

Premiums are going up on nearly 14,000 federally subsidized flood insurance policies in Hawaii as Congress looks to get a federal program out of a $24 billion hole.

Legislation signed by President Barack Obama on Friday means homeowners won't see premiums jump all at once, as scheduled under a 2012 overhaul.

But while the law was widely hailed as a victory for people who had seen their bills triple, quadruple or even increase 15-fold overnight, pocketbook pain for many has merely been delayed.

And as many as 1.1 million policyholders nationwide with subsidized government insurance will still be hit with steady rate increases.

The relief law calls for insurance rates for owner-occupied homes to increase by up to 18 percent annually, while businesses and second homes will see hikes of 25 percent a year.

On Oahu more than 8,000 policyholders face the hefty premium increases, primarily on Oahu's North Shore. But for anyone who wants a coveted piece of oceanfront property, insurance is bound to be getting more expensive.

"I just had a conversation with a buyer who wanted to buy on the North Shore, and he was really worried about the increases," said Cathy Possedi, a Hono­lulu-based real estate agent with Hawaii Life Real Estate Brokers. "Eventually you're going to pay for it."

Under the new law, someone with a Hawaii vacation home paying $1,200 per year now for flood insurance would be paying $3,600 in five years and over $11,000 in 10, until they drop their subsidy and pay a rate based on the real flooding risk.

"You can imagine what it must be like for a homeowner who's owned their home for 10 years," said Ivy Costa, an insurance agent with Liberty Mutual.

Before the relief law was signed, a homeowner in Hale­iwa was shocked to find out that his $1,200 annual insurance rate would rise to as much as $47,000 a year, Costa said. Another, in Kai­lua, was faced with a potential increase to $30,000 per year from $700.

Howls of protests about such immediate increases led to the relief law that put the brakes on the 2012 overhaul that was supposed to end costly government subsidies under the National Flood Insurance Program.

But many say even the adjusted premiums will soon be beyond their means, though the question remains, Will the government continue to subsidize insurance in places that are increasingly untenable as sea levels rise and storms become more severe?

Congress created the National Flood Insurance Program in the late 1960s, in part because private insurers had abandoned the market. Today, in most places, it is the only option for buying flood insurance, which is required for most mortgages on any property in a flood hazard zone.

About 5.5 million policies are in force today, about 20 percent of them subsidized.

The Associated Press analyzed records from the Federal Emergency Management Agency for roughly 18,500 communities where the government offers subsidized flood insurance.

The data show communities in every state where even a few years of price hikes could leave many affected owners unable to afford their properties. Hundreds of small river towns and coastal communities with significant numbers of structures in flood hazard zones are at risk.

FEMA's records also show why there is pressure to raise rates. Some communities with a large proportion of subsidized properties have been tremendously costly for the flood program. But there are just as many places where those policy discounts have cost taxpayers almost nothing.

The reform law signed by the president rolls back portions of a 2012 overhaul that took away subsidies immediately for any property that changed hands or was remapped into a higher risk flood zone. Both groups will now be able to continue paying subsidized rates.

But at least 820,000 homeowners nationwide will still be hit with rate increases of up to 18 percent each year until the program is collecting enough revenue to cover a $24 billion shortfall created by a series of catastrophic storms.

Owners of another quarter-million businesses or second homes will see their rates rise 25 percent each year, until their premiums reach rates that match the true risk of flooding.

Hawaii is particularly vulnerable, and some of the most desirable oceanfront properties are at the highest risk of flooding.

In December the ocean chipped away multimillion-dollar homes that line Sunset Beach, taking a deck here and a bedroom there as its waves pounded away.

On Oahu, 22 percent of policyholders face premium increases, and on the Big Island, 36 percent of policyholders could see a hike.

"Some people just can't afford to pay $20 grand in an insurance policy, so they're going to sell their house," Possedi said. "And who's going to buy it? … lt's a negative chain reaction."

Cathy Bussewitz, Associated Press

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kailuabred wrote:
All of the rich people (mostly GOP, I'm sure) who live along the beaches and howl for less government are now going to lambaste the government for abandoning the subsidy program! Oh, the irony of it all!!
on March 24,2014 | 05:51AM
palani wrote:
Most flood damage occurs along rivers such as the Mississippi, not the ocean. And when disaster strikes, those without flood insurance are bailed out by FEMA anyway. Think New Orleans.
on March 24,2014 | 06:56AM
speakingtruth wrote:
Agree. If flood comes water flows into the ocean for those who live by the ocean. The homes at the North Shore were damaged by waves and should not be coved by flood insurance but by hurricane insurance.
on March 24,2014 | 08:44AM
Slow wrote:
Permit, please, a correction. Hurricane insurance is specifically for damages caused by hurricanes. Most property policies have exclusions for hurricane damage as well as for flood damage. Flood is a different peril and is broadly defined. I lived my younger life on Lanikai beach. My parents bought flood insurance in case of a tsunami. Ironically we received a $5,000 payment for damages done to goods in an old Sears storage shed that got soaked when a long downpour gave us a foot of standing water in the yard. Neither peril, rain nor tsunami would be commonly thought of as a flood.
on March 25,2014 | 06:03AM
cojef wrote:
An ultra-rich billionaire is willing to fund the next 2 elections in the amount of $100 Million to the Democratic Party. Further the progressive left Hollywood stars favor and fund the Democrats. Statistically the democrats receive funding from rich.
on March 24,2014 | 07:15AM
sjean wrote:
joke of the day cojef.
on March 24,2014 | 08:01AM
HanabataDays wrote:
If you don't like the odds, break your piggybank and send your pennies in to the Koch Bros.
on March 24,2014 | 09:45AM
Grimbold wrote:
Darn waste of government = taxpayers money. Why should we subsidize any home owner insurance? BAD !
on March 24,2014 | 08:45AM
serious wrote:
Get off it. If there would be Republicans in Hawaii they would have done something about the #1 state in cost of living, worst traffic, highest housing costs, Jones Act, no legal gambling, worst state to start a business, highest percentage of residents on welfare, etc etc. No, if Republicans lived in those ocean front homes, they would have self insured--that's called planning. Insurance is a waste of money unless it's needed--take those premiums and invest in blue chip stocks!!!
on March 24,2014 | 10:12AM
Slow wrote:
There is a saying in the insurance business that you clearly understand. No one wants to pay for insurance until they need it. Then they want a lot more of it. Flood insurance, like most available coverage is not mandatory. Certainly you can take those premiums and invest them. When the stock market tanked that idea may have not seemed so wise.
on March 25,2014 | 06:07AM
lwandcah wrote:
If you think that this will only affect mostly "rich people" you are kidding yourself. Just like "hurricane insurance" we will all get affected.
on March 24,2014 | 06:44AM
Grimbold wrote:
But it should not be subsidized. Period !
on March 24,2014 | 08:46AM
palani wrote:
And neither should Obamacare.
on March 24,2014 | 12:48PM
Slow wrote:
I just knew Obamacare was the cause of flooding. But you neglected to include the other culprit: Norm Chow.
on March 25,2014 | 06:15AM
Slow wrote:
I fully agree with you on this one. Why would the government subsidize insuraance? We knew the risks when we chose to live on he water.
on March 25,2014 | 06:10AM
h20dragon wrote:
Whenever I bought a house it was, "Buyer Beware". Near streams, rivers or anywhere water can readily affect property was always someplace you looked at twice or more before deciding to get involved...even if there had not been an incident in recent history.
on March 24,2014 | 08:09AM
SteveToo wrote:
Sounds like a good idea to me. Why should I help pay someone insurance if they choose to live in a flood zone?
on March 24,2014 | 08:35AM
HanabataDays wrote:
This government program should pay its own way. People who elect to live in flood zones should foot the bill for their own insurance or go naked. I don't see where the government subsidizes volcano insurance in Puna. Same principle.
on March 24,2014 | 09:44AM
CEI wrote:
The answer is simple. No rich democrats in Puna so no demand for free taxpayer money.
on March 24,2014 | 01:51PM
Slow wrote:
Great point. And fire Norm Chow too. He had as much to do with flood insurance as rich Democrats.
on March 25,2014 | 06:17AM
opihi123 wrote:
the thing they leave out in this story is that the federal flood policy only covers $250,000 in damages to the structure and much less than that for contents. Anyone who knows construction costs these days realizes that that is not replacement value. so all of the rich haters should realize that this change more affects the average joe trying to get ahead than the rich.
on March 24,2014 | 11:48AM
CEI wrote:
I feel bad for the homeowners who will see rate increases. On the other hand the program uses hard earned taxpayer money (most media outlets like to refer to it as federal funds to disguise its source) to subsidize high risk enterprises. No wonder the program is in the red by 24 billion. The worst part is that little Barry's pals in Kailua who so graciously provide shelter to he and his family every Christmas may also see a rise in their taxpayer subsidized rates. Ah, who cares they are probably rich, greedy GOP types anyway.
on March 24,2014 | 12:33PM
Slow wrote:
How did you manage to turn a discussion of the under-funded federal flood insurance program into a condemnation of our president? Let's cut to the essence of what you are saying: Impeach Obama and fire Norm Chow! All problems solved!
on March 25,2014 | 06:21AM
kuewa wrote:
For all of you who are making snide comments about how this will affect rich people, you should realize that flood insurance is only required if you have a mortgage. If flood insurance rates become intolerable, a truly rich person can pay off the mortgage (if there is one), leveraging other assets if necessary. Of course, lack of flood insurance exposes an owner to loss of property, but for a very rich person replacing a building would usually not be a huge dent in the pocketbook. The people who will really suffer with the rising costs are average coastal dwellers who can ill-afford additional expenses, sich as families who rely on fishing or other coastal industries for their livelihood. For these homeowners, a disaster insurance plan (fire, wind, flood, etc.) which averages risks across a range of policyholders would make more sense and would likely not require subsidy. However, the insurance industry decided to carve out certain risks, making the policies un-affordable and the govt may have worsened the situation by perpetuating the carve-outs via subsidies. This is not unlike what was happening with people with pre-existing conditions who tried to obtain reasonably priced health insurance prior to ACA (Obamacare).
on March 24,2014 | 02:09PM
Slow wrote:
The insurance industry does not act in lock-step. Companies compete. If any insurance company thought they could provide flood insurance profitably it would be here and widely available. Any coverage "carve-outs" can be filled with other insurance coverage if you are willing to pay the price. In any case, I believe you pay to play. If you have a recognized peril like flood exposure take action. Move. Buy pricey insurance. My family carved out a curving "swale" that would allow standing water an escape. It worked preventing a deluge from inundating our home.
on March 25,2014 | 06:31AM
Wazdat wrote:
Makes perfect sense to me. You buy on the ocean and you pay. SIMPLE
on March 24,2014 | 02:31PM
boshio wrote:
Seriously folks, Hawaii is over due and should have a state lottery, which I'm sure most tickets will be bought by tourists. All monies go to education, infrastructure, insurance, etc. Most of all no greedy hands allowed in the pot ( legislators).
on March 24,2014 | 03:54PM
awahana wrote:
Head for the hills!
on March 24,2014 | 04:04PM
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