Flood Insurance. Get ready! The National Flood Insurance Program will be raising rates October 1, 2013. Will you be affected? Will there be additional rate hikes coming to the coast?
In 2012, the U.S. Congress passed the Flood Insurance Reform Act of 2012 which calls on the Federal Emergency Management Agency (FEMA), and other agencies, to make a number of changes to the way the NFIP is run. As the law is implemented, some of these changes have already occurred, and others will be implemented in the coming months. Key provisions of the legislation will require the NFIP to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map (FIRM) updates impact policyholders. The changes will mean premium rate increases for some – but not all –policyholders over time.
In 1968, Congress created the National Flood Insurance Program (NFIP). Since most homeowners’ insurance policies did not cover flood, property owners who experienced a flood often found themselves financially devastated and unable to rebuild. The NFIP was formed to fill that gap. To ensure the program did not take on unnecessary risks, one of the key requirements to participate in the program was that communities had to adopt standards for new construction and development.
Pre-existing homes and businesses, though, could remain as they were. Owners of many of these older properties could obtain insurance at lower, subsidized, rates that did not reflect the property’s real risk. In addition, as the initial flood risk identified by the NFIP has been updated over the years, many homes and businesses in areas where the revised risk was determined to be higher have also received discounted rates. This “Grandfathering” approach prevented rate increases for existing properties when the flood risk in their area increased.
Fast forward 45 years, flood risks continue and the costs and consequences of flooding are increasing dramatically. In 2012, Congress passed legislation to make the National Flood Insurance Program more sustainable and financially sound over the long term.
The new law eliminates some artificially low rates and discounts which are no longer sustainable. Most flood insurance rates will reflect full risk, and flood insurance rates will rise on some policies.
Actions such as buying or selling a property, or allowing a policy to lapse, can trigger rate changes. You should talk to your insurance agent about how changes may affect your property and flood insurance policy. There are investments you and your community can make to reduce the impact of rate changes. And FEMA can help communities lower flood risk and flood insurance premiums.
Flood Insurance. What is Changing Now?
Most rates for most properties will more accurately reflect risk. Subsidized rates for non-primary/secondary residences are being phased out now. Subsidized rates for other classes of properties will be eliminated over time, beginning in late 2013. There are several actions which can
trigger a rate change, and not everyone will be affected. It’s important to know the distinctions and actions to avoid, or to take, to lessen the impacts.
Not everyone will be affected immediately by the new law – only 20 percent of NFIP policies receive subsidies. Talk to your agent about how rate changes could affect your policy.
• Owners of non-primary/secondary residences in a Special Flood Hazard Area (SFHA) will see 25 percent increase annually until rates reflect true risk – began January 1, 2013.
• Owners of property which has experienced severe or repeated flooding will see 25 percent rate increase annually until rates reflect true risk – beginning October 1, 2013.
• Owners of business properties in a Special Flood Hazard Area will see 25 percent rate increase annually until rates reflect true risk — beginning October 1, 2013.
Owners of primary residences in SFHAs will be able to keep their subsidized rates unless or until:
• You sell your property;
• You allow your policy to lapse;
• You suffer severe, repeated, flood losses; or
• You purchase a new policy.
Flood Insurance. Grandfathering Changes Expected in 2014
The Act calls for a phase-out of discounts, including grandfathered rates, and a move to risk-based rates for most properties when the community adopts a new Flood Insurance Rate Map. So if you live in a community that adopts a new, updated Flood Insurance Rate Map (FIRM), discounts – including grandfathered rates — will be phased out. This will happen gradually, with new rates increasing by 20% per year for five years. Implementation is anticipated in 2014.
Flood Insurance. What Can Be Done to Lower Costs?
For home owners and business owners:
• Talk to your insurance agent about your insurance options.
• You’ll probably need an Elevation Certificate to determine your correct rate.
• Higher deductibles might lower your premium.
• Consider remodeling or rebuilding.
• Building or rebuilding higher will lower your risk and could reduce your premium.
• Consider adding vents to your foundation or using breakaway walls.
• Talk with local officials about community-wide mitigation steps.