WASHINGTON – May 20, 2013 – Changes are coming to the National Flood Insurance Program (NFIP) that could impact real estate transactions and property owners across the country.
Experts from the Federal Emergency Management Agency (FEMA) that manages the government’s flood insurance program spoke to Realtors® at the Flood Insurance 101 session during National Association of Realtors® (NAR) Midyear Legislative Meetings & Trade Expo that concluded Saturday in Washington, D.C.
Last year’s Biggert-Waters Flood Insurance Reform Act reauthorized the flood insurance program through 2017 so property owners could afford access flood insurance, according to Kristin Robinson, FEMA senior advisor. But the Act also changed some of the rules.
NAR says it strongly supported the Act, and it believes the NFIP saves taxpayers property and money by reducing the cost of government assistance following a flood disaster.
The NFIP writes and renews flood insurance policies for more than 5.6 million home and business owners in more than 21,000 communities nationwide where flood insurance is required for a mortgage. Before Congress passed the Biggert-Waters legislation, the program operated under short-term extensions. In the past five years, there were 18 extensions and several lapses in program coverage, delaying or cancelling thousands of real estate transactions daily, according to NAR’s own research.
However, the flood insurance program doesn’t take in as much money as it puts out. Robinson said the NFIP is $24 billion in debt following several disastrous storms in recent years, since the costs and consequences of flooding continue to increase.
“For decades the program has made flood insurance available at subsidized rates that did not reflect the true risk of flooding; artificially low rates and discounts are no longer sustainable,” she said. A subsidized rate means a homeowner’s cost should be higher – that the government undercharges for the policy’s worth and makes up any difference with taxpayer funds.
Andy Neal, actuary, said that owners with a subsidized flood insurance rate will see their premiums increase yearly until it equals a fair market cost to cover the property. Neal said it must be done to preserve the flood insurance program by keeping it financially stable.
Most homeowners with flood insurance won’t be impacted. The majority – more than 80 percent – aren’t subsidized and already pay the full actuarial (fair market) rate. They may see routine rate increases, however.
“Only about 20 percent of NFIP policies receive subsidies – mostly older structures built before the community’s first flood insurance rate map was issued, which are known as pre-FIRM (flood insurance rate map) properties. Some of these policyholders will be impacted by the gradual phase-out of subsidized rates; an even smaller number will see immediate changes to their insurance policy rates,” said Neal.
Who pays higher flood rates?
Rate changes are likely to affect owners of subsidized pre-FIRM non-primary residences, business properties and properties that have had severe repetitive flood losses. Owners of some pre-FIRM condos and multi-family units will also see their rates gradually increase.
Owners of pre-FIRM primary residences (homesteaders) will keep their subsidies unless their policy lapses. However, they could lose their subsidy if the home suffers a severe, repeated flood loss.
A flood insurance policy could also lose its subsidy if a home is, or has been, sold since July 6, 2012, when the legislation was enacted. In that case, the new homeowner pays the full rate for flood insurance.
Some grandfathered principal residences will also lose their subsidies over several years period, but not until the communities’ flood map is revised.
Is my property subsidized?
Neal recommended that home and property owners talk to their insurance agent to determine if their property is currently being subsidized. He said flood insurance rates vary based on a property’s location, elevation and flood risk. They can be as low as a few hundred dollars or up to $10,000 or more if the property is well below flood level and has had severe repeated flood losses.
Lowering the cost of flood insurance
While higher rates may place a greater burden on families, there are investments homeowners can make to either reduce or better access their flood risk so they can continue to protect their families and possessions from floods. According to Neal, homeowners can lower their risk by elevating their property and potentially reduce their flood insurance rates.
A completed elevation certificate determines the property’s elevation relative to the base flood elevation. Elevation certificates can cost several hundred dollars to complete, but they could potentially lower homeowners’ flood insurance premiums.
Some homeowners with flood insurance policies have already received quotes for higher rates, but that could be caused by several other factors, such as changes to FEMA’s flood maps. Also, some insurance agents may adjust rates to correct previous mistakes made about the home’s features when they are re-evaluating an insurance policy at renewal.
As FEMA improves its mapping technology and draws more accurate flood maps, some homes may now be located in a flood zone, or a higher risk zone, where flood insurance is more expensive. However, some homes could be removed from flood zones.
For more information on flood insurance and the latest changes, visit FEMA’s webpage covering the National Flood Insurance Program’s Flood Insurance Reform Act of 2012.
© 2013 Florida Realtors®