NFIP changes outlined and more to come

Lisa Jones

Recent changes to the National Flood Insurance Program (NFIP) could affect future transactions, according to Lisa Jones of Carolina Flood Solutions.

“Realtors® are trusted advisors to homebuyers and sellers,” Jones said. “It’s important that they understand these changes and that there are more coming.”

Some of the most important issues to understand about the current changes are:

• Not everyone will be receiving a flood insurance refund. “Everyone thinks they’re getting their money back and that’s not the case,” Jones explained. “This is a big misconception. For example, if the previous owner of a commercial property didn’t have a flood insurance policy and the current owner is paying $18,000 for insurance, the current owner won’t be getting a refund. The refund relates to the previous rate. A policy had to be in effect.”
• Canceling a subsidized flood insurance policy will make it harder to sell a property in the future. A property must be continually covered by a federal insurance program or it will no longer be eligible for a subsidized program. “A federally subsidized flood insurance policy adds value to a property,” she said. “You may hear people talk about dropping their subsidized flood insurance policy and you should discourage them from doing so. They can increase the deductible or lower the amount of coverage but they should keep the policy, even if they’ve paid cash for the property and aren’t required to have the flood insurance because they don’t have a mortgage. Eventually, they’ll want to sell it and not every buyer is going to have cash to buy.” The federal program does not recognize private insurers so if you cancel or lapse the subsidized policy for a comparable private market policy then you will not be able to return the a NFIP policy at the subsidized rate.
• NFIP surcharges are expected to be applied to every residential and non-residential property in the first half of 2015. For primary single-family residential properties, the surcharge is $25. For all non-primary single family, commercial/non-residential properties, the surcharge is $250. “Small businesses are going to be especially hard-hit with the blanket surcharge, which Congress is using to offset the loss of funds when they rolled back the reforms made in the Biggert-Waters Act. If they are pre-FIRM subsidized, they’re also going to see their rates rising by 25 percent each year,” Jones explained.
• Everyone needs to have an elevation certificate. Check with the local government or insurance agent to see if there is already one on file. If none exists, the property owner should have one conducted by someone who’s qualified to do so in Pennsylvania. “Find someone who’s experienced in doing so,” Jones advised. “Ask your local government for the names of people who do them in your community.”
• Don’t assume that the flood insurance policy is written correctly. “If something doesn’t make sense, ask questions,” she said. “If all the neighbors are paying $400 for their insurance and one homeowner is paying $6,000, ask why.”

“There was a big storm when the changes first started occurring and there’s a bit of a lull right now,” Jones said. “The NFIP is an evolving program and there are a lot of provisions that haven’t been implemented yet. Realtors® can play a role by working with local governments to help with programs to make their communities more flood resilient and help reduce premiums.” If they are not already, encourage your community to enroll in FEMA’s Community Rating System.