BY: Bo Rhodes, President’s Club
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When purchasing or building a home on the Outer Banks of North Carolina, consider whether the property lies within an area protected by the Coastal Barrier Resources Act (CBRA). The CBRA restricts what flood insurance can be sold for properties within protected zones, and the Outer Banks has several such areas designated. Because of the lack of natural protection from wind and storm, insuring a home in coastal North Carolina can be challenging, but even more so within a CBRA zone. However, CBRA flood insurance is available.
Unintended Consequences of the National Flood Insurance Program (NFIP)
The NFIP is administrated by the U.S. government, enabling home and business owners to rebuild after a storm, tidal surge, or other flood event. However, for many years pricing was artificially low in coastal areas and did not match the risk of damage, leading to an increase in construction in coastal areas. Through federal flood insurance, taxpayers were thereby subsidizing building in high-risk areas as well as rebuilding on the same sites after multiple flood claims. In these same areas, private insurance would have discouraged development due to its higher – and more appropriate – pricing.
The CBRA was passed in 1982 and protects certain coastal areas stretching down the east coast, gulf coast, and Great Lakes. Currently it protects a total of 3,500,000 acres of land, wetlands, and aquatic habitat. It’s stated purpose is “…to minimize the loss of human life, wasteful expenditure of Federal revenues, and the damage to fish, wildlife, and other natural resources associated with the coastal barriers…” To discourage development in these areas, the CBRA does not allow traditional federally supported flood insurance to be sold for structures located in them. More specifically, it cannot protect existing structures substantially improved or damaged after October 1, 1983. This means that traditional flood insurance is still available, but only on certain pre-1983 buildings.
Maps of these protected zones are maintained by the U.S. Fish and Wildlife Service and can be viewed in the CBRS Mapper. Depending upon the location, these protected zones can contain both new or older homes, and even businesses.
CBRA Flood Insurance Options
The first choice for CBRA flood insurance is usually a traditional flood insurance policy from the NFIP. However, since eligibility is rare, home and business owners must look to the private market to fill the void. Insurance costs for NFIP policies have steadily increased over the last several years, thereby attracting more private market flood insurance companies to compete with the newer reasonable pricing. Even so, few offer quotes for homes and businesses within CBRA zones, which leads most shoppers to purchase flood insurance through Lloyds of London.
Lloyds of London is still considered a private market because it is not a federal insurance program, but it is also “non-admitted”, meaning it is not regulated by the State of North Carolina. The rates they charge are not subject to approval by the North Carolina Department of Insurance and, should a client feel their claim was not handled properly, they cannot appeal to the Department of Insurance for consideration. Lastly, if the insurance company should ever fail financially, clients are provided no protection from the state. All these reasons make a CBRA flood policy more risky and more expensive than traditional flood insurance. In fact, costs for a CBRA flood policy can be six to ten times higher.
Prices for homes in CBRA zones are generally lower than comparable properties where traditional flood insurance is available, making these CBRA properties more attractive to unsuspecting buyers. Yet the increased cost of both home and flood insurance may make total costs much more expensive. Be an informed home buyer and watch out for your own interests. Browse the CBRS Mapper to see if the home or business you are considering buying is within a CBRA zone, and request a flood insurance quote prior to signing a contract.
Questions on CBRA flood insurance? Contact your Bankers insurance agent. We will help determine your risks and advise how to best cover them. Not a client of ours? Let us earn your business! Each client is assigned a personal insurance agent and provided their email address as well as a phone number that rings right on their desk.
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