Flood Insurance Costs To Be Affected By New FEMA Remapping
New Federal Emergency Management Agency (FEMA) flood zone mapping currently in progress in Hawaii has raised concerns among real estate agents regarding the impact of the reclassification of real property in coastal and other flood prone areas on insurance coverage.
“When the cost of insurance increases, as it will with the remapping of flood zones, it means that home ownership becomes more expensive for both home buyers and existing home owners in affected areas. Condominium association maintenance fees will also have to be revised,” said Prudential Locations Broker in Charge Gayle Lee (R), CRB, CRS.
On Oahu, SFHAs (Special Flood Hazard Areas) can be found along the shoreline, near streams, in valleys, and on the Ala Wai, according to Insurance Associates President Sue Savio. “If your property is located in an SFHA, the bank will require flood insurance as a condition of the loan,” Savio said. “The flood maps for Oahu are still in a preliminary stage but are expected to become effective on December 3, 2010. The new maps incorporate updated flood hazard information from FEMA’s State of Hawaii Hurricane Study for the coastline of the southern shore of Oahu. Some properties have been moved from low risk to high risk and others from high risk to low risk zones. In some cases the zone remains unchanged, but the Base Flood Elevation may be raised or lowered.”
Lee, who became aware of the remapping project six months ago, contacted FEMA for details on the affected areas. “I invited the FEMA representative to speak at our October sales meeting and bring all of our 250 sales agents up to date on the status of the new flood maps,” Lee said. “FEMA pointed out that they were indeed remapping Oahu flood zones and, according to preliminary revisions, it appeared that Kakaako, Aina Haina, and more of Hawaii Kai and the North Shore would be among the affected areas. What this will mean for home buyers is that mortgage lenders will take into consideration not only the financial picture of the buyer but also the status of the property when determining how much insurance will be needed in order to make the loan.”
Lee cited the case of a young couple who purchased a single family home in Aina Haina a year and a half ago in an area already classified as a flood zone. “They were surprised to find out that they would need to be able to cover an additional $200 a month for home owners insurance due to the location of the property. People buying in existing or newly classified flood zones can expect to pay higher insurance premiums…creating another hurdle to home ownership for first time buyers with a tight budget.”
Savio noted that properties reclassified in a SFHA can sometimes be grandfathered at the lower rate if the structure was built prior to September 3, 1980 and a flood policy is purchased prior to December 3, 2010. “Our company handles insurance for the majority of condominiums on the island, so we are in the process of recalculating association costs for the coming year,” Savio said. “One Hawaii Kai condo we insure is not currently in a mandated flood zone but the owners’ association has asked us to calculate how the remapping could affect their budget. Although the association will be responsible for making the payment, the cost will be included in the owners’ maintenance fees. Generally condominium budgets are set as early as August for the following year. So by August 2010, we hope the Oahu mapping will be completed so we can give them a rate for their flood insurance costs for 2011. Real estate agents and buyers need to have this information in order to calculate what the monthly financial obligation will be for any new purchase, whether single family or condominium.”
Savio said that, to date, there have been no changes in the types of insurance required to cover properties located in flood zones, whether single family or condominium; vacant land cannot be covered. While most insurance agents are licensed to sell flood insurance, only certain agents specialize in this type of coverage. Owners of residential buildings may purchase up to $250,000 of building coverage and $100,000 of contents coverage. Owners of commercial buildings may purchase up to $500,000 of building coverage and $500,000 of contents coverage. For residential condos, the amount of coverage that is available is the lesser of the building’s replacement cost or $250,000 times the number of units in the building.
The determination of the extent of the hazard and related liability is generally based on the Flood Insurance Rate Maps provided by FEMA. The Agency’s flood zone mapping and area classifications, available in Hawaii since 1980, are an essential reference utilized by lenders, insurance agencies, builders, and architects.
Although any entity that finances the acquisition or improvement of property in special flood hazard areas is required to obtain flood insurance, there are numerous Hawaii property owners without it, either because they paid cash or because the property was acquired or developed before FEMA regulations became an industry standard.
“When flooding occurs in any Hawaii community, our company and others in the business receive urgent requests for flood insurance,” Savio said.
“Considering the relatively low premiums involved, it doesn’t make sense to wait for a disaster to obtain coverage as you cannot get it instantly. Flood loss and damage are not included in the standard coverages provided by home owners, hurricane, fire, and casualty insurance and should not be confused with water damage resulting from a roof being blown off in a hurricane or plumbing or leakage. Flood insurance is a separate policy with very specific provisions and is like any other policy sold by an agency such as ours with the exception that it is federally backed by FEMA.”
The National Flood Insurance Program was established by Congress in 1968. The Federal Government subsidized the development of the initial round of flood hazard identification maps, called Flood Hazard Boundary Maps, a project mounted by the Corps of Engineers assisted by private companies. The second phase of the project produced the Flood Insurance Rate Maps used today. Every community in the nation is required to make a set of these maps available for public viewing. The Honolulu City and County Department of Planning and Permitting serves as the local map repository.