Insurance rates (of any kind), like flood waters, only seem to rise.  No one mentions them when they go down. Since the days of lower cost flood insurance rates appear to be coming to end, it is important to discuss a program that will help defray some of that increase and how it will benefit realtors.  When you have a client that would like to purchase or sell a home in a floodplain, this can help you have one more card on the table.

Why the flood insurance rate increase?

As I mentioned in my last post, flood insurance rates are set to rise dramatically over the next five – ten years.  One of the flood insurance reform webinars I participated in a few months ago stated that the National Flood Insurance Program has an outstanding debt of approximately $24 billion.  I do not have a link for that webinar, but there are various sites on Google that back up that claim.  Regardless, the program is struggling.

An increase means…

Without having exact numbers to provide on what the average annual flood insurance rate costs are in Southern Indiana, a reasonable general statement would be that the average annual cost is below $1,000.  Right now, the costs are projected to be potentially $5,000-$10,000 per year over time.

You blinked really hard.  Don’t feel bad…everyone else did too.

Rates for certain policies (there are grandfathering rules still in place for many properties) will be rising 18-25% per year until they reach the full cost for that property.  There will also be surcharges added to policies.

As I noted in my first post, check out the Homeowner Flood Insurance Affordability Act of 2014 fact sheet for some quick facts.

How will you sell a home in the floodplain? 

That is something we have been discussing internally in Jeffersonville and Clarksville.  If a home is worth $70,000, who will be willing, or able, to pay a potential $7,000 in floodplain insurance?  With that said, will there be lots of homes sitting vacant in the floodplain?  With no crystal ball, it is impossible to say what will happen, but it could be possible.   We certainly hope not!

What are we doing about it?

The National Flood Insurance Program has a voluntary incentive program known as the Community Rating System, or CRS.   When a community participates in the CRS program, it is making a commitment to work towards reducing the flood risk for everyone in that community (and save lives).   The program is designed to reduce the flood damage to insurable property through a comprehensive program.  This is a program I manage for the City of Jeffersonville.

Through this program you gain points by completing certain activities, and when those points are compiled, you achieve a certain level or class.  Each class provides a certain level of monetary discount automatically to flood insurance rate policy holders. Check out the FloodSmart website for those details.  Currently in the Southern Indiana region at the time of this post:

  • Jeffersonville is a Class 8 and flood insurance policy holders in the Special Flood Hazard Area receive a 10% discount;
  • Clarksville is a Class 9 and flood insurance policy holders in the Special Flood Hazard Area receive a 5% discount.

We are working together to improve our Class rating, and hope to receive a larger discount for the policy holders in our communities.

Why isn’t everyone else doing this?

I get asked this plenty after people find out about the CRS program.  The simple answer is that I do not work for those communities, so I do not know, nor can I speak for them.  What I do know is that the program takes a significant amount of time and is something that someone must be specifically appointed to manage.  The CRS program has a gigantic binder filled with page after page of riveting material.  Well, maybe not riveting, but the information in there is very detailed and specific.

Finally, CRS is a points vs. money program.  There are lots of low hanging fruit, but after a certain point, funds must be spent to acquire more points to improve the program class rating.

To Wrap Up

As of the date of this post, it appears that flood insurance rates may cause some potential issues down the road.  In Jeffersonville and Clarksville, we are hoping that the CRS program will help ease the pain somewhat for the policy holders.  Please remember this when your client either lives in the floodplain or is looking to buy a property in the floodplain.  The discount may not help you make the sale either way, but it sure can’t hurt.