The Flood Insurance Reform Act of 2012 is doing more than just raising eyebrows now that insurance premium increases have reached the doorsteps of business and residential owners on Fort Myers Beach.
The reality of the country-wide flood insurance legislation, known as the Biggert-Waters Act, is hitting home like a brick to the head with rate increases of ridiculous proportions. Beach property owners that may be affected include those who have ground level/pre-firm structures for either residence or business.
Sea Gypsy Inn's Jacki Lizsak is one of the business property owners that has been hit the hardest on the island because she purchased the property between the act's national adoption date of July 6, 2012 and Oct. 1, 2013, the date that the phase-out of Pre-FIRM rate subsidies for business and non-residential properties began, according to Josh Overmyer, the Town's Floodplain Administrator.
Sea Gypsy Inn will see dramatic premium rate increases on flood insurance if the Biggert-Waters Act is not repealed or delayed.
"Non-residential properties purchased between those two dates will see full-risk rates upon their next renewal, instead of 25 percent increases until the property reaches the full-risk rate," he stated through email. "I understand that Jacki purchased the property in November 2012, therefore in November 2013, her flood insurance premium will rise to the full-risk rate as determined by actuaries. The property is in Flood Zones VE-EL14 and VE-EL15, but her two existing structures are located only slightly above the grade of the lot. When a structure is seven or eight feet below the Base Flood Elevation (elevation determined to be the flood level in the 1 percent annual chance flood), the property is at risk of flood in much more frequent, less extreme flood events, and could see catastrophic damage in the 100-year flood."
Lizsak recently showed proof of her flood insurance declaration paperwork. If no action on the act -like an appeal or a delay- doesn't come into effect, her premiums will rise from $2,722 on $170,000 of coverage to $46,907 on the establishment's two buildings -a rate increase of $46,207.
The insurance for the Sea Gypsy Inn is due Nov. 5, the anniversary date when Lizsak bought the property last year. Since she is carrying a mortgage, her mortgage holder is requiring that she carry flood insurance. If not, she may face foreclosure.
"This is effectively going to kill us," she said. "If I do not buy flood insurance, my mortgage holder will force-place it, which means it will be even more expensive then this. We feel like we need the protection."
The increase come next month will be just under a 2,000-percent increase. Thanks to a friend of a friend, members of Congress have personally seen copies of the inn's "dec sheets," she added.
Lizsak has done extensive renovations to property within the year. The family-owned business is a large investment that may not stay afloat with the premium increases in flood insurance. Sea Gypsy Inn carries several types of insurance: property, property contents, liability, wind, flood and flood contents. It is a business member of the Fort Myers Beach Chamber of Commerce.
"We are giving back every way we can. We've employed people in the community, and we have done community outreach with community services and donations," Lizsak said.
Besides insurances, there are taxes and operating expenses to consider as well.
"I am not sure what we are going to do," said Lizsak.
Mango Street Inn co-owner Tree Andre disclosed the flood insurance premiums for her properties' two buildings will increase from $2,800 to $23,000 per year. The inn was purchased in 2008, and this year's premium was paid prior to the act going into effect. The Andres face a 25-percent increase until the property reaches the full-risk rate if the act is not delayed or repealed.
"Obviously we are going to budget for it. It will also require a rate increase for us," Andre said. "There are a lot of people who are working to make this decision. I think that the people making decisions should keep in mind of the adverse affect."
Lizsak says she holds national and state Real Estate officials responsible for not making her aware of the act while she was in the purchasing phase.
"I hold the Florida Real Estate Commission and the National Real Estate Association culpable for not educating the Realtors and raising the alarm," said Lizsak. "This was never disclosed. It certainly was never disclosed to me when I bought the property. This also never should have been implemented without an affordability study as part of the language in the bill."
Karen Swanbeck, president-elect for The Realtor Association of Greater Fort Myers and the Beach, says national lobbyists for Real Estate association have worked "very, very hard" in trying to get a five-year extension if not a repeal to this act.
"I think that everybody has been taken back by what the program is putting in quotes as actuarially sound rates. These actuarially sound rates were not part of the discussion initially," she said.
Swanbeck offered figures to show that Florida has been carrying the National Flood Insurance Program for more than 35 years. Since 1978, Florida has contributed $17.1 billion in premiums to the national flood insurance program and received back $3.7 billion in claims.
"The whole premise of why they are making these rate changes is to bring them into actuarially sound rates," she said. "I cannot imagine an actuary anywhere out there is going to say an actuarially sound rate is a total loss every five to seven years. The majority of flood losses are partial losses."
Fort Myers Beach has seen its share of hurricanes and other tropical events that have caused flooding but not necessarily flood losses.
"There are an awful lot of these properties on the island that are built to ground level that have never had flood losses," said Swanbeck. "So, to be looking at premiums in that $6,000 to $12,000 range depending on various factors doesn't make a lot of sense."
The premium hikes have begun to push aside mortgage companies in the sale process.
"If these rates don't get changed, cash buyers are choosing to self-insure for floods because they don't want to pay these rates," said Swanbeck. "This has an opposite effect on the program because the program is getting zero dollars for that property. If cash becomes the majority of transactions, that always puts the pressure on values. It will ultimately affect all property values."
Renters may also be affected in a trickle-down effect.
"If all of a sudden the cost to own a property goes up hugely, the owner can either absorb the rate increases, pass it on to the renter or sell the property," said Swanbeck.
Gov. Rick Scott is now backing a lawsuit from the Mississippi Department of Insurance and its aim at delaying the increases. The lawsuit, which is against the U.S. Department of Homeland Security and one of its agencies (FEMA), states rates shouldn't go up until FEMA provides Congress with a required affordability study on the increases.
Back in August, the Fort Myers Beach Town Council unanimously approved a resolution that urges the U.S. Congress to take action by way of repeal or delay on the Biggert-Waters Act. An added clause to the resolution involves a possible alternative of a National Disaster Fund to keep rates lower.
The resolution stated "the new parameters established by the Biggert Waters Act imposes unreasonable flood base elevation requirements and unreasonable increases to flood insurance premiums" by having a "devastating financial effect on the local economy and on real property owners in the Town of Fort Myers Beach and Lee County."
Town officials have referred to a large number of policies (subsidized Pre-FIRM rates because the structures were built before the community joined the National Flood Insurance Program) that will be affected by Section 205 of the Biggert-Waters Act as "disproportionate."
"Florida has a quarter of all Pre-FIRM structures with existing flood insurance policies in the U.S.," stated Overmyer. "Lee County has 3 percent of all Pre-FIRM flood insurance policies in the U.S., and the Town has 0.13 percent of all of the Pre-FIRM structures in the US with existing flood insurance policies. To put that in perspective, we have about 0.002 percent of the population of the US."
If you notice a sudden spike in your flood insurance premiums, email Swanbeck at firstname.lastname@example.org or drop by her office at VIP Realty at 2450 Estero Blvd. with your paperwork. She can send a copy of your renewal policy and last year's policy to her lobbyist at the state and national level to help out.