I’ve started receiving letters from the National Flood Insurance Program, or NFIP, for my residential clients with flood insurance policies on their homes. These letters are being sent to all flood insurance policy holders prior to their renewal as a result of the Homeowner Flood Insurance Affordability Act, or HFIAA, of 2014. The letter notifies flood insurance policyholders of a surcharge which will be added to their upcoming renewal.
There are two levels of surcharges; $25 for flood policies on a person’s primary residence or $250 for a non-primary or secondary residence such as a beach home or condo. In order for a homeowner to qualify for the $25 surcharge, they or their agent, must mail their flood insurance provider proof the residence is their primary home. This can be a photocopy of their driver’s license, auto registration, car insurance, voter registration, homestead tax credit, or the form included with the letter. If the documentation isn’t sent in before the due date, then the higher surcharge will automatically be added.
There are several reasons for the surcharges, but the bottom line is there simply aren’t enough funds in the program to cover another disaster like Hurricane Sandy. Congress attempted to address the shortage of funds in 2012 with the passage the Biggert-Waters Flood Reform Act of 2012 (see https://wiseinsurancegroup.com/flood-insurance-reform-act-of-2012/). Its goals were:
- For NFIP to raise flood insurance rates to reflect a property’s true flood risk
- Make NFIP more financially stable
- Change how Flood Insurance Rate Map (FIRM) updates impact policyholders
The problem BW-12 created for many people was the rate increases came all at once in 2013. In some cases the rates increased so dramatically ($10,000 to $20,000 or more a year), people couldn’t afford them, nor could they sell their property even if they wanted to.
To head off some of the rate increases, President Obama, signed the Homeowner Flood Insurance Affordability Act last year (see https://wiseinsurancegroup.com/update-flood-insurance-reform-act-2012/). HFIAA calls for a gradual rate increase for people who hold subsidized flood insurance rates. The increases will be no less than 5% and no more than 18% annually, except in limited cases, until the premium reaches its full risk rate. It also calls for surcharges on all policy holders until all pre-FIRM subsidies are eliminated.
There are, however, four limited property classes that will see rate increases up to 25% annually including:
- Older business properties insured with subsidized rates
- Older non-primary residences insured with subsidized rates
- Severe repetitive loss properties insured with subsidized rates
- Buildings that have been substantially damaged or improved built before the local adoption of a Flood Insurance Rate Map (known as Pre-FIRM properties)
The good news is almost 80% of NFIP policyholders pay a full-risk rate prior to passage of B-W12 or HFIAA, and they are minimally impacted by the laws. In many cases, these policyholders are merely paying the surcharge. For more information on the new rules, FEMA provides a great overview at http://1.usa.gov/1z3ZE03.
One thing’s for sure, flood insurance is going to cost more in the years to come. Have a question or comment? Share them with me on our Google +, Facebook, or LinkedIn pages. I’d love to hear from you!