Flood Insurance revisions

[David Krulac]

A bill revising the Biggert-Maxine Waters Flood insurance increase has passed the US House and is expected to pass the US senate shortly. The National Flood Insurance Program is $24 billion in debt from payouts exceeding premiums collected. Essentially the flood program has not been able to be self supporting to the tune of spending $24 billion more than they had. The Federal agency has a $30 billion borrowing cap. Super storm Sandy alone cost the agency $8 billion.

The revised bill is not lower premiums but spread them out for a longer period of time. The original BMW law had a phase in of 4 years, the revised legislation extends that self support point for the Flood Program further out into the future. Kicking the can further down the road and only pushing the inevitable into the future.

There is to be a $25 surcharge for a flood policy on a primary home and $250 surcharge for secondary homes. Flood insurance rates are to rise 15% per year until the program is solvent.

Its uncertain today what effect this legislation will have on real estate values for properties in the flood zone. In one county the estimated loss in value direct due to this legislation is estimated to be $1 billion by the county officials.

Some people who do not have mortgages and therefore not required to carry flood insurance might elect to "self insure" ie not carry any flood insurance and put for any flood damages out of pocket.

Most of the investors that I have talked to have said that they will stay away from flood zone properties and try to sell the ones they own now as soon as possible before the full force of the insurance premiums kick in.

But as a counterpoint one investor told me that he would be seeking out flood zone properties with the idea of buying them at extremely low prices, all cash, with no insurance and rent them out for the cashflow.