McMahon Agency explains Biggert-Waters reforms

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Local insurance experts say revisions to flood insurance program help, but don’t fix burdens on homeowners

OCEAN CITY — Legislation that would ease the burden of carrying flood insurance for seashore property owners passed in the U.S. Senate in January. A different flood insurance reform bill awaits a vote in the House of Representatives this week.

A local insurance broker said that while the revisions that rein in some of the costly provisions in the Biggert-Watters Flood Insurance Act of 2012 are a step in the right direction, the proposed legislation delays, but does not repeal, sharp increases for older homes that do not meet stringent modern building codes.

“The government has played their cards,” said William McMahon, president of the McMahon Insurance Agency. “They’re going to come back with another bill, similar to Biggert-Watters. They have delayed the increases for four years, but the increases are coming back.”

The National Flood Insurance Program is deeply in debt, McMahon explained. Up and down the coast, he said, the properties that were damaged during Hurricane Sandy were pre-FIRM, meaning they were built before 1975 and the introduction of the National Flood Insurance Program, which instituted stricter building standards

“The water came in at 9 feet, 6 inches. Most newer properties are at the 10 foot elevation,” McMahon said.

Property owners of pre-FIRM homes are the most vulnerable to increases, McMahon said. Post-FIRM homes – or those built after 1975 – are in a better position, depending on their elevation, he said.

Prior to the 1962 nor’easter, which devastated Ocean City, many homes were built on cement slabs. Many of them washed away when the ocean met the bay during that infamous storm.

“The decision years ago from federal officials was that they would charge people more (for flood insurance) for older homes not built to code, but it was decided that it wasn’t fair to make them pay the whole thing, so the program subsidized it,” McMahon said. “Then, last year, it was decided that it was not fair to continue subsidizing when the program was in a hole.”

The reform bill, known as Biggert-Waters, phases in flood insurance premium increases for some property owners over four years.

“This delay is an opportunity to map out a game plan for four years from now,” McMahon said.

Those with second homes at the shore who might be close to retiring might consider doing so soon and making their shore property their primary residence, he suggested.

“If you’re looking at remodeling, talk to your insurance agent,” he said, because the federal government is offering Increased Cost of Compliance grants, worth up to $30,000, for property owners looking to elevate their homes.

“If your home was greatly damaged, where the damage was over 50 percent of the assessed value of the home, the money is there for four years to elevate the home or pay for pilings,” McMahon said. “The clock is ticking.”

He said the most important thing is to get an elevation certificate.

“We have seen people with pre-FIRM rates get better rates. Every property is different. Invest in an elevation certificate, you’re going to need it sooner or later, and it could help you,” he said. “If you are pre-FIRM but you didn’t get water, there is a good chance you are above 10 feet. You could get a discount. We can speculate, but if you don’t have the elevation certificate, we don’t know.”

McMahon said that the Senate revisions to Biggert-Waters delays the 25 percent premium increase over four years on all second homeowners and business owners, and those with pre-FIRM properties.

Under the current law, flood insurance premiums for pre-FIRM properties are phased in over four years, but if a homeowner sells their home, the new owner will have to pay what is called the actuarial rate, or the unsubsidized rate.

“The premium could be substantial,” McMahon said.

He said U.S. Rep. Frank LoBiondo has indicated that he is optimistic that changes to Biggert-Waters will pass the House.

“From the information we have received, it’s a good possibility,” he said.

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