The federal government is thinking about getting out of the insurance business. Doing so would save the taxpayers some money. It would also have a radical impact on many people's property values. Some of you would profit; others stand to lose a lot.
At issue is federal backing for flood, crime and riot insurance, affecting about 2.1 million policyholders throughout the country.
You will be a loser if your federal coverage is canceled, or if the price of your insurance rises so high that you can't afford it. Without insurance, your investment in a house, land or business would be at risk. If you tried to sell, the property would bring a lower price. Some uninsured properties might not be salable at all. Some big cities would deteriorate further if crime insurance were snatched away.
You will be a winner if you're allowed to stay in the federal insurance program or if you can buy coverage elsewhere at affordable rates. On the resale market, property eligible for hard-to-get federal insurance will be worth much more than property without it.
In this game, one person's loss is another's gain.
Federal flood, crime and riot insurance came into being because businesses and homeowners could not get affordable coverage from private companies. In most cases, they still can't. But the cost of subsidizing federal insurance is going up, and the Reagan administration wants big cuts.
Flood insurance is the biggest program, and the most controversial. There are about 2 million policyholders in 17,000 communities, all of them living in coastal areas, along lakes and riverbanks, on flood plains or in hills vulnerable to mud slides. In 1980, a bad year for storms, the federal insurance administration paid out $3 for every $1 collected in premiums (although last year the program ran a little in the black).
Insurance rates rose an average of 30 percent in October 1981 and another 38 percent in January 1982 (although individual increases varied, depending on the policy). Another rate rise is scheduled for June.
But higher prices aren't the worst of it. Some property owners may effectively be prevented from building on the land they own. Here's where real-estate investments are really going sour.
As of Oct. 1, 1983, federal flood insurance no longer will be available on certain tracts along the Atlantic and Gulf coasts--tracts that the Interior Department considers "undeveloped coastal barriers." Preliminary maps establishing the undeveloped areas have been published. For a list of maps available, write to Eastern National Cartographic Information Center, U.S. Geological Survey, 536 National Center, Reston, Va. 22092.
Anyone who has land in an eastern or southern coastal area--or is thinking about buying land--should ask a real-estate agent whether his tract is being listed as "undeveloped." If it is, you should try to build on that property before Oct. 1, 1983.
If you build before the deadline, you will still be eligible for federal flood insurance. That policy can also be passed along to a new owner at resale. But federal flood insurance will not be available in undeveloped areas for buildings put up on or after Oct. 1, 1983.
Even without flood insurance, you can still build in undeveloped areas. But you will probably have to do it with cash.
"We will be very selective about lending money in vulnerable areas," says Chris Payne, vice president of Planters National Bank in Manteo, N.C. He couldn't offhand think of any oceanfront properties that he would lend money on.
So even if you can afford to build a house without flood insurance, you might have a hard time selling it, because buyers couldn't get mortgages. "There are a lot of individuals who have already bought lots, maybe with the thought of retiring there, and they are going to be hurt," Tom Franks of the National Association of Realtors told my associate, Virginia Wilson.
Federal crime insurance and riot insurance would be eliminated completely under the president's 1983 budget. Crime insurance is the second largest money loser, costing the program $5 for every $2 received in premiums. About 62 percent of all the policies are held in New York state; the remainder are spread over 26 states, Washington, D.C., Puerto Rico and the Virgin Islands. The riot reinsurance program, available through 300 private insurers in 16 states, is not losing money, but nevertheless is scheduled for oblivion.