This is an extended version of the article that appeared in the December 2013 issue of Investment Advisor.
If coastal homes aren’t getting hit with storms, they’re getting hit with higher insurance rates. Wildfire hazard risks are escalating for those in fire zones. People who never thought of themselves as living in earthquake zones are finding out that fracking can change all that—and that they may not be covered for the damage. Worse, they may find themselves liable for it and more if a fracking operation takes place on their property.
What’s an advisor to do?
Have a conversation with clients about property locations and coverage before trouble strikes, or turn to an insurance professional who can.
Take those coastal homes, for instance. It’s not news that insurers have been raising rates or exiting high-risk coastal areas altogether. Look for more of that to happen in the wake of Hurricane Sandy, as flood zone maps are redrawn and new building regulations take effect.
What is news is the spike in federal flood insurance rates. Thanks to the passage of the Biggert-Waters Flood Insurance Reform Act of 2012, which requires premiums for flood coverage to reflect actual risk, both homeowners and new buyers are finding that premium rates are escalating exponentially. Subsidies were eliminated as of Oct. 1. No more grandfathering of existing policies, either; someone who’s lived outside a flood zone for years but carried a policy anyway will suddenly be paying much more if a redrawn flood zone map depicts them as living in harm’s way.
Home values in at-risk areas are plummeting, too, as would-be buyers opt out of properties that could see them paying thousands for flood insurance—in some cases 10 times as much as before, with $10,000, $20,000, or even more than $30,000 premiums—in addition to their homeowner’s policies. And, of course, flood insurance is mandatory for many mortgages.
While there are bipartisan calls for the law to be delayed or even rolled back (the law was passed with bipartisan support to shore up the health of the federal flood insurance program, which was deeply in the red—$20 billion after Hurricane Katrina alone, never mind Sandy), given the current state of Congress, action is not likely to happen any time soon.
So much for that cheery news. Now on to fire. The 2013 CoreLogic Wildfire Report, released in October, indicates that more than 1.2 million homes, with a combined total property value estimated at more than $189 billion, are at high risk of wildfire damage.