*Serious* Flood Insurance Changes!

By | October 30, 2013

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If you’ve got a property in a flood zone – or you’re thinking about buying one – you need to know about BIG, BIG changes that are coming.  Barring the housing meltdown of 2006, this is perhaps the single most impactful change to our market I’ve seen since I started working in real estate.  And it’s not a good one.

The Biggert-Waters Flood Insurance Reform Act was signed into law on July 6, 2012 in response to recent major drains on the federally run National Flood Insurance Program (NFIP).  Virtually all flood insurance policies in the U.S. are underwritten through this program.  It’s been a major drain on the federal government and natural disasters like Hurricanes Sandy and Katrina have caused the program to run at massive deficits.  In response, the Biggert-Waters Act has aimed to fundamentally alter the way policies are charges to reflect the actual cost of insurance instead of a subsidized cost.

Who’s Affected

If you’re in flood zone ‘X’ or ‘X-500’, you don’t have much to worry about.  You’re probably not required to carry flood insurance for your mortgage and these changes won’t apply to you.  If, however, you’re in flood zones ‘A’,  ‘D’, or ‘V’ (or any variation thereof), these changes ARE going to affect you and are very likely to increase the amount you have to pay for flood insurance.

It’s important to know that these zones aren’t just along waterways and the coast.  In fact, most of the properties that will be affected AREN’T in these areas and the hardest hit won’t be the coastal properties.  The link below will take you to the FEMA website and will allow you to check the flood zone for your property:

https://msc.fema.gov/webapp/wcs/stores/servlet/FemaWelcomeView?storeId=10001&catalogId=10001&langId=-1

What That Means For You

Owners of non-primary residences in Special Flood Hazard Areas will see 25% increases annually until rates reflect the true risk (which can be massive).  Owners of primary residences in SFHAs will be able to keep their subsidized rates until they sell their property, allow their policy to lapse, suffer severe, repeated losses, or purchase a new policy.  Owners who buy into one of these areas will have to pay the full amount right away without the graduated increases.  Also, the law is retroactive to July 6, 2012, so if you’ve bought since then – whether or not it’s a primary residence – you’re affected.

We’re Also Getting New Flood Maps

The other leg of this law is that FEMA was ordered to redraw their existing flood maps using new tools that weren’t available when they initially mapped the nation.  Sarasota County’s map is scheduled to be presented in February of 2014 and is slated to go into effect sometime in 2015.  Properties with zoning changes will see premiums increase at a rate of 20% per year until they reach full-risk rates.

More Information

This is just a brief overview of the Biggert-Waters Act; there’s a ton more information available through FEMA.  I’m including a link to a FEMA-issued .PDF that further outlines the changes:

http://www.floods.org/ace-files/documentlibrary/2013_nfip_reform/FEMA_PPT_BW12_32613.pdf

… And Now The Reason You’re REALLY Reading!

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2 Comments

Stephen in Orlando on November 6, 2013 at 11:59 am.

I have read that Florida regulators are working to sidestep the problems that could be caused as a result of these flood insurance rate hikes. If I am remembering correctly, they are trying to get private companies to write flood insurance for the state, thus they wouldn’t have to abide by this federal program. I was wondering if you have heard any more details on this?

Reply

thebigkrumm on November 6, 2013 at 12:09 pm.

That’s correct, but there are also some fixes being looked at through the federal government (right now I think they’re looking at a four-year delay in the implementation so they can complete analyses re: the situation). Private insurers would absolutely be a workaround here but there aren’t many of those out there at the moment. If Biggert Waters does indeed continue we will likely see the rise of a couple of players in this field.

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