Flood insurance popped up on the national news feeds in late March of this year. The Biggert-Waters Flood Reform Act of 2012 (BW-12) went into effect in October of 2013 impacting home and business owners along coastal areas of the Gulf of Mexico and Atlantic Ocean, as well as in the Missouri River Basin (see http://126.96.36.199/~wiseinsu/flood-insurance-reform-act-of-2012/).
Many home and business owners in these areas have been paying flood insurance rates that have been subsidized by the government. This has put a major stress on the flood insurance program which is $24 billion in debt due to the large losses in recent years from Super Storm Sandy and flooding in North and South Dakota, Iowa, Nebraska, and Missouri in the Missouri River Basin.
Flood insurance rates in these areas have skyrocketed due to the implementation of BW-12 which was aimed at correcting three primary provisions of the National Flood Insurance Program (NFIP) including:
- NFIP will be required to raise flood 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 impact of BW-12 was to wean people off the subsidized flood insurance rates by having them pay the true cost for flood insurance. The only problem with BW-12 was in the implementation. Starting in October last fall, home and business owners began to receive flood insurance bills with the new rates. People in Galveston who’d been previously paying $2,000 to $3,000 a year for flood insurance received bills ranging from $8,000 to $17,000 a year.
As you can imagine, the new rates threatened to force some homeowners from their homes or make it impossible to sell them as anyone buying their home would have to pay the higher rates. Small business owners were faced with determining how to stay in business with the higher rates. Both home and business owners wrote and called their elected officials to petition them to lower flood rates, and on Friday, March 21, President Obama signed a bill into law capping flood insurance premium increases. In addition, the bill allows the below market subsidized rates to be passed on to people buying homes in these areas.
While this may sound like a happily ever after storybook ending, for many it’s only a temporary reprieve. The legislation still imposes mandatory price hikes of 18% a year for homeowners and 25% a year rate hikes for business owners. The bottom line is that rates for more than 61,000 Texas flood insurance policies are expected to increase due to the new legislation. Most of the policies that will experience increased rates are the ones that are benefitting from subsidized rates. What will be interesting to see is where this goes from here.
My advice for anyone looking to buy a home or open a business near the Gulf or any type of water including rivers, streams, creeks, and lakes is as follows:
- Find out if it’s in a flood zone before you make an offer.
- Obtain a flood insurance quote from your insurance agent so you know what the rate will be.
- Consider having an elevation survey done to determine where the top of the foundation is in relation to the flood zone. If it’s above the zone, this will help lower your flood insurance rate while if it’s below flood level expect to pay more.
- Remember that flood insurance has two separate parts to it; there is coverage for the home (your mortgage will require that at a minimum) and optional coverage for contents (see http://188.8.131.52/~wiseinsu/an-introduction-to-flood-insurance/).
- The higher the deductible, the lower the premium and the lower the deductible, the higher the premium.
If you have experienced a large rate increase on your flood policy, be sure to contact your insurance agent. You may benefit from the new bill President Obama signed and qualify for a lower rate.
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