Treading Water

Treading Water

The Housing Market Versus Flood Insurance Premiums

Flood Insurance

Fighting for Their Community: Battling Flood Insurance Premium Increases (from left to right – Dauphin County Commissioner George Hartwick, Harrisburg Mayor Eric Papenfuse, and Mid Penn Bank President and CEO Rory Ritrievi


With their youngest son getting ready to start kindergarten, Jeff King and his wife, Jill, put their Wilkes-Barre home on the market last summer intending to buy a house in a different school district.

When listing their three-story, four-bedroom home for $95,000, they gave little thought to nearby Solomon Creek, which caused their property to be in a flood zone. After all, since they bought the house in 2005, their flood insurance premium was less than $800 a year.

Soon they had a buyer who asked the Kings to have a surveyor complete an elevation certificate to assess the property’s risk and the annual flood insurance premium required.

The result floored the Kings and sunk the deal; annual flood insurance for the property would now be $7,015, and unless it was an all-cash purchase, coverage was required. King, an extermination company owner, dropped plans for a loan on his commercial building as well, also in a flood zone with a prohibitive premium.

King is now the Pennsylvania head of the grassroots campaign, “Stop FEMA Now,’’ started by a New Jersey real estate broker. King is hoping Congress will act to stop the premium increases, which has left his family unable to get a new house.

“We dropped the price to $85,000 and then to $75,000 to try and make up for the flood insurance, but that still wasn’t enough,’’ Jeff King said of the family’s home. “This really put a damper on all our plans. We had no idea this would happen.’’

Across Pennsylvania and throughout the country, owners of properties in flood zones are starting to face the same insurance premium shock, due to what was until recently a little-known piece of federal legislation passed in 2012 called the Biggert-Waters Flood Insurance Reform Act. On its face, the act sounds deceptively simple: begin eliminating federal subsidies for property in flood zones so owners eventually have to pay the “full actuarial rate’’ for insurance.

Also seemingly clear was the justification for the change: after Hurricane Katrina in August 2005 caused a record-breaking $16.3 billion in claims and swamped the resources of the federally-backed National Flood Insurance Program (NFIP); there was a growing call among federal lawmakers to reduce subsidies. After Biggert-Waters passed in July 2012, the $7.4 billion in claims generated by Hurricane Sandy that October bolstered that view.
Between the two superstorms and a number of lesser disasters, as of July 2013 the NFIP was $24 billion in the red.

In October, the first inkling of how the act could devastate property values and crush local governments and school districts that depend on property taxes struck home. That’s when policies started to renew at higher rates and would-be buyers were faced with paying the full, non-subsidized amount for flood insurance.

Indeed, the act’s impact extends far beyond coastal communities. It touches any area near to a creek, stream, or river–communities where blue collar and middle class families own modest homes and can ill afford skyrocketing premiums.

Pennsylvania has 34,478 residential and business properties that stand to lose all flood insurance subsidies. Nationally, there are roughly 1.1 million policies–about 20 percent of all NFIP’s policies–that were sold at subsidized rates. Now, depending on the type of property, owners could be looking at increases of around 25 percent a year until the unsubsidized rate is reached.

At this point, only primary residences that have never flooded and whose insurance policy has never lapsed will be able to retain the insurance subsidy, but the non-subsidized rate would apply if the property were sold. Businesses, however, will see increases of 25 percent annually until the unsubsidized insurance rate is reached, according to FEMA.

Read the full article in February’s issue of Transactions. Not a subscriber? Visit the Transactions page on this website or call PACB at 717-231-7447 to start receiving the magazine.