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Bill Freehling is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Bill Freehling.
Senate action could delay higher flood insurance rates
The U.S. Senate on Monday approved a measure that could lead to flood insurance premium increases being delayed for at least four years.
The vote came as some Fredericksburg-area property owners, particularly those whose properties are within flood zones in downtown Fredericksburg, have been expressing concern about rising insurance premiums.
The rate increases are due to the Biggert-Waters Flood Insurance Reform Act of 2012, which was designed to make the Federal Emergency Management Agency’s National Flood Insurance Program fiscally sound.
Many property owners haven’t seen increases yet because they are grandfathered in under the previous rules and are still receiving a subsidized rate, but people who have purchased properties in flood zones since the law took effect have reported significant increases in premiums.
Some in Fredericksburg have expressed concern about what effect the higher rates could have on property values.
One of those people is Jay Jarrell, who, along with a group of others, in October purchased the 7,220-square-foot building at 822 Caroline St. in downtown Fredericksburg for $800,000 as an investment.
Jarrell said even though the building is just a foot and a half into the 100-year flood zone, his investment group in order to get a bank loan had to purchase $500,000 worth of flood insurance, which is the maximum for commercial properties under the federal program.
He said he wouldn’t have purchased insurance for such a small risk of flood damage unless he was required to. People who don’t use bank financing to buy properties in flood zones aren’t required to get separate flood insurance.
Jarrell said the previous owner’s flood insurance premiums were $6,000 per year. The original quote he got was $18,000 a year, which he said “took an income-producing property and created a loss.” Eventually his group was able to get the annual rate down to $8,000 after doing some fine-tuning and opting for very large deductibles.
The National Association of Realtors has been lobbying against higher flood insurance premiums due to the effect they could have on the ability to buy and sell properties within flood zones.
An NAR survey showed that in October and November, about one in 10 transactions involving U.S. real estate in flood zones was either canceled or delayed because of issues with flood insurance premiums.
Another Senate vote on the bill is expected later this week. The bill would still need to get through the House of Representatives to take effect.