How is the Flood Insurance Reform affecting homeowners?
Last year when the Biggert-Waters Flood Insurance Reform Act was passed, everyone was pleased that funding for the national flood insurance program (NFIP) would continue for another five years. Phil Hoffman, owner of Hoffman Custom Homes in Louisiana and president of the New Orleans Area HBA said, “Without that extension, we wouldn’t have been able to sell a single house down here.”
Today, homeowners are concerned with the rate increases on flood policies. Provisions in the Biggert-Waters Act allow for significant rate increases in order to make the NFIP solvent. Some homeowners saw an increase in their flood premiums in October. The US House of Representatives voted to delay increases in flood insurance premiums on grandfathered policies earlier this month.
Homeowners who have federally backed mortgages and live in areas that are considered flood zones are required to purchase flood insurance. As of April 30, 5,556,913 policies valued at $1.282 trillion in premium were in force. Of those policies, single-family homes accounted for 3.8 million, and condos and multifamily homes for 1.3 million. According to FEMA, the highest number of policyholders are in Florida with over 2 million. Texas has 642,593, Louisiana has 484,595, California has 254,920, New Jersey has 243,848, and South Carolina has 204,220.
The NFIP is $20 billion in the negative due to several years of devastating natural disasters and increasing property damage claims. Biggert-Waters, which was passed before hurricane Isaac and hurricane Sandy, has provisions that will phase out subsidies and discounts for flood insurance premiums. The Act pushes more risk onto private-sector insurers and policyholders. The Act also created a national reserve fund which will help handle major flood catastrophes.
According to FEMA, which oversees the NFIP, 8 percent of homeowners in the program have flood policies that are already being actuarially rated. This means that their premiums reflect full risk rates. Under the Act, five percent of policyholders, who are subject to redrawn floodplain maps, will see an increase of 25 percent each year until the true risk premium is reached. This five percent includes owners of non-primary residences, business properties, and properties that have suffered severe repetitive losses.
Under the Act, homeowners in some areas of Louisiana, who have never experienced a flood and are currently paying approximately $1,000 a year in flood premiums, could experience rate increases of his much is $15,000. Rates increases such as this will make flood insurance unaffordable.