More about flood insurance


Hoquiam’s Mayor Jack Durney, a longtime insurance broker, has a unique point of view on how changing flood insurance rates might affect our community.

As fixes to the fixes to the fixes make their way through the political process in Washington D.C., we talked with Jack to gain some perspective.

HARBOR ECONOMY AT RISK

The flood insurance situation is critical to our community, Mayor Durney emphasized.

“If this doesn’t get resolved, this will be worse than any mill closure and any number of mill closures,” Durney said. “It will be the loss of equity that we have in our homes, the end of people’s plans to hand their homes over to their children or to sell their home and move into an apartment, using the equity to live off of. It will affect human beings enormously. It will be tragic if it is not stopped.”

Even for folks who live on the hills and are not directly affected by having to buy flood insurance, imagine what life would be like if people can’t buy or sell homes or businesses in the heart of Aberdeen, Hoquiam or Cosmopolis and parts of the rest of the county – or even afford to keep them because the annual flood insurance premium is so high, Durney said.

Empty homes and business will be left because people can’t afford to pay the flood insurance. Thanks to the real estate crash, and double-digit unemployment around here we’ve already seen what it’s like to have empty houses beckoning transients to live there.

BACKGROUND ABOUT FLOODS

For some background, just why is the government involved in flood insurance?

Mayor Durney reiterates that “surface water” has always been excluded from property insurance policies whether they are for a home, farm or business.

“The losses are devastating and can be devastating to the insurance company especially if it is a lot in one area,” he explains, adding that the same is true of earthquake insurance.

That’s the reason why the Federal Emergency Management Agency (FEMA) stepped in during the 1960s to offer flood insurance.

As we’ve mentioned in earlier columns, after several particularly disastrous disasters, the FEMA flood insurance program found itself financially in the red. So, in 2012 the folks in Congress passed the Biggert-Waters Flood Insurance Reform Act, which says that the flood insurance premiums need to more accurately reflect the risks. People who live in those areas likely to flood will pay more.

It does make sense in many ways. Typical to the insurance game, if you’re the one with greater risk you pay more.

However, as Jack points out, the very nature of insurance is “that the premiums of the many pay the claims of the few.” But, with flood insurance, the only people who buy it are the ones that are supposedly at greater risk for flooding.

In other words, imagine how well cancer insurance would work if the only people who bought it had a huge number of their relatives with cancer. Or imagine trying to support a long-term care insurance policy program if the only people who bought it were over 70 years old.

“Flood insurance policies are limited to certain areas and are only for those who have mortgages,” he said.

“The federal government, which requires banks to make sure certain homes have flood insurance, say, ‘

If you don’t require the insurance we’re not going to insure your deposits.’ That’s how they get the lenders by the throat,” Durney said.

So, it’s not that lenders won’t lend to people for mortgages in certain areas that don’t have flood insurance, it’s that they can’t.

Even if people do manage to afford the mortgage to buy the home with flood insurance, most folks don’t have the extra $4,000 to $7,000 a year that some of the new rates are working out to be.

(By the way, Durney does note that there are options to federal flood insurance including something called “A Difference in Condition Policy,” which is usually written through companies such as Lloyds of London that provides coverage on the house that the lender and government will approve. To be eligible for the policy depends a lot on the type of foundation a building has. “Another advantage to it is that you can include earthquake insurance,” he said.)

MORE COMPLICATED

Durney says that his agency has written many flood policies over the years and that the FEMA flood insurance is unnecessarily complicated.

To be clear, while the federal government provides flood insurance through FEMA, it contracts with large insurance companies to issue policies and handle the claims.

“One of the problems we’re seeing is that everything about flood insurance is far more complicated than it needs to be,” he said. “One of the new complications is that just to get a quote on how much the flood insurance will be, people have to provide a professional elevation certificate that costs from $500 to $1,500 depending on where the property is located!”

Another problem Durney noted is that those surveys aren’t always accurate.

“One of our clients at the South Beach had a home in the family for several generations and when it came time to sell it the flood insurance premium came in at $27,000 a year. We talked to the surveyor, who had checked a box wrong and then the premium amount came down to about $3,700 and the home was able to stay in the family.”

CAN EVERYONE HELP A LITTLE?

We’re glad that so many politicians are working hard on the problem. We can see that one of the fixes could be to at least partially keep flood insurance subsidized by people across the nation.

For one thing, according to the FEMA website, 20 to 25 percent of the places that flooded, were not expected to do so and didn’t have flood insurance.

In addition, through our taxes, we pay to help after calamities such as hurricanes, tornadoes and snowstorms. We also help subsidize crops and other things.

Yes, we have low-lying areas here, but it’s those very low-lying areas near rivers and the ocean that help provide agricultural land and even more significantly a water transportation system that helps get products from around the country to their intended markets.

Also, as Durney points out, there have been many infrastructure improvements in coastal communities like ours, including dikes, levees, and pump stations that have made a huge difference in preventing flooding.

“We haven’t had high water since 1937 in Hoquiam… Don’t tell me we’re that flood prone when we haven’t had the claims. We haven’t had any water flowing through the kitchen for decades.”

Moreover, Durney was recently reviewing information from the FEMA databases indicating that they collect more than $1.5 million annually in premiums from properties in the 98550 zip code – some of which is outside the city limits of Hoquiam. However, FEMA has only paid out $436,000 in claims in total since 1979 for the same area.

“Given the few claims actually paid, that hardly justifies the rates they have been charging, let alone what they want to charge now,” Durney said. “Our insurance commissioner in Washington would put a Cease and Desist Order on them if they were a regulated insurance company in our state!”

SOLUTION COMING?

Even as we move on in future weeks to various topics, we’ll try to keep you up-to-date on what is going on with this legislation that affects all of Grays Harbor.

Like Mayor Jack Durney, we’re grateful Sen. Patty Murray and Rep. Derek Kilmer, as well as many others, are working hard for a good solution.

At the very least, we need to hit the pause button on this 2012 legislation which is going to create a whole new disaster.

Dave Murnen and Pat Beaty are construction specialists at NeighborWorks® of Grays Harbor County, where Murnen is the executive director. This is a non-profit organization committed to creating safe and affordable housing for all residents of Grays Harbor County.

Do you have questions about home repair, renting, remodeling or becoming a homeowner? Call us at 533-7828, write us or visit us at 710 E. Market St. in Aberdeen

 

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