Flood Insurance Hikes Catch Some By Surprise

Homeowners who ignored a letter from their flood insurance company explaining rate increases that took effect April 1 are in for a $250 surprise when they get their renewal notices.

The good news: People living in their primary residence can reduce the $250 premium surcharge to a $25 surcharge, even if their policy renewal has already taken effect.

The bad news: Reducing the premium increase involves contacting their agents and sending in paperwork. The type of paperwork required, however, recently changed from copies of documents proving you live in your home to a simple affidavit you can sign.

Confused?

"We know there's confusion out there," said Dolores Glass, senior communications manager for Wright Flood, the largest flood insurance provider in Florida and the U.S. To head off the confusion, "we've been communicating since October with our agents and with our insureds as renewals come up."

The National Flood Insurance Program, and the entity that runs it, the Federal Emergency Management Agency, isn't exactly famous for communicating policy changes in a clear and reader-friendly manner.

Here's why your flood insurance bill is increasing: Three years ago after Hurricane Sandy resulted in nearly $4 billion in flood damage claims, Congress passed a law forcing the National Flood Insurance Program to start setting insurance rates that more accurately reflect costs of covering risks in flood-prone, low-lying coastal and waterfront areas, including most of South Florida between Interstate 95 and the Intracoastal Waterway.

The next year, many homeowners received bills showing their premiums -- covering up to $250,000 for the structure and $100,000 for contents -- spiking by thousands of dollars. Policyholders complained mightily, and Congress last year backpedalled by rolling back the largest increases. The maximum increases to most flood insurance bills -- including premium increases and surcharges -- were limited to 18 percent this year.

To help make up the difference, Congress spread out increases to homeowners and businesses across the country, including those in areas at the lowest risks of flooding.

So now, most flood insurance bills include a $22 "Federal Policy Fee" and a Reserve Fund Assessment of 10 percent or 15 percent of premiums.

And this year marks the beginning of a flood insurance premium surcharge of $250 for businesses and owners of homes that are not their primary residences, such as vacation or rental homes.

FEMA required insurance companies to notify their policyholders of the new prices at least 90 days before their policy renewal dates.

And that's often where the confusion begins. "We're not getting a lot of phone calls because of the price increases. But we are getting phone calls because of the letter," said Chris Heidrick, principal of Heidrick & Co. Insurance Team, Sanibel, and a flood insurance specialist.

The first batch of letters mailed earlier in the year explained that homeowners could reduce the $250 surcharge to $25 by sending their agent proof that they live at the address they are insuring.

The proof had to be a copy of a driver's license, automobile registration, proof of vehicle insurance, voter registration, documents showing where children attend school or a homestead exemption verification document.

Palm Beach County retiree Steve Haas said he remembers "autographing and sending, I think, a copy of my homestead exemption."

But there was a big problem. Insurers "started realizing that if a person is just moving into a new home, they're not going to have those documents," Glass said. And customers couldn't wait until they were in the new home to buy flood insurance because federally backed mortgages require it for homes in high-risk flood zones.

So on May 1, the National Flood Insurance Program sent letters telling agents they could accept signed affidavits from homeowners simply attesting that they will live in the insured location "for more than 50 percent of 365 days following the policy effective date." There's no more need for driver's licenses, voter registrations or the other documents, even though letters from insurance agents continue to list them above a new statement that the signed affidavit can be substituted "if you cannot or choose not to provide the documentation listed above."

Policyholders who did not receive the initial rate-hike letters or failed to claim their right to limit their surcharge to $25 will see the $250 surcharge reflected in their flood insurance renewal bill that may not include guidance on how to attest that they are insuring their primary residence.

But that doesn't mean they're stuck paying the extra $225.

The National Flood Insurance Program will give refunds to policyholders who provide a proof-of-residency document or affidavit, even after their policies are renewed. "If they've paid it and still want to make the correction, they can make the correction," Glass said.

Even with the increases, fees and surcharges, Haas says the federally subsidized flood insurance rates aren't bad, compared with rates for auto and property insurance, considering the value of the property being insured. "At $500 a year, I don't feel used," he said.

For more information:

FEMA Fact Sheet: How April 2015 Program Changes Will Affect Flood Insurance Premiums

FEMA Guidance Memo and blank affidavit policyholders can sign and send to insurance agents to reduce $250 surcharge to $25