National flood insurance reforms phase out subsidies

A perfect storm may be brewing for properties within flood zones due to National Flood Insurance reform act passed last year and a separate flood zone mapping initiative.

When Congress reauthorized the National Flood Insurance Program (NFIP) last year, the act began to phase out subsidized flood insurance rates for properties purchased after July 2012 and grandfathered properties which are allowed to keep lower rates based upon older flood maps until new maps are issued, according to Austin Perez, NAR Senior Policy Representative – Environmental Issues.

“NAR supports funding to improve the accuracy of Federal Emergency Management Agency’s (FEMA) flood maps,” Perez said. “This means homeowners will have better information about their flood risk but some may also lose their subsidized flood insurance rate over five years in remapped areas, after the law is implemented as early as next year.”

More than 80 percent of NFIP policyholders are already paying the full-risk actuarial rate and will not be affected by the gradual subsidy phase-out. Some of the rest (i.e., second and vacation homeowners) started to see their subsidized rate phase-out earlier this year; their rate will continue to increase at about 25 percent per year until the policies meet the full-risk rate. Others such as commercial properties will see their first increase on Oct. 1, 2013 or if a principal residence, at point of sale. Nonsubsidized properties will see routine rate increases beginning in 2014. According to a report in HouseLogic, the full flood rate could range between a few hundred dollars to $10,000 or more if the property is well below flood level and has severe repeated flood losses. Refer the homeowner to a qualified insurance agent to determine their flood insurance rate. NAR has provided some legal guidance on what otherwise to tell your clients at Realtor.org.

Recently, FEMA has released updated maps in the southeastern part of Pennsylvania, which could have an impact on how much flood insurance is required for properties located in the defined flood zones.

Perez recommends steps that can be taken if a homeowner’s flood insurance increases:

• File an appeal: If the homeowner believes FEMA has inaccurately conducted the mapping, order an elevation certificate to prove the home is less at risk of flooding. Elevation certificates can cost several hundred dollars and may show that the home is indeed at greater risk.
• Elevate the property: Federal and state grants may be available to assist in raising the property above the flood level, where there is no longer a flood insurance purchase requirement.
• Investigate community involvement: Communities that adopt more stringent flood zone requirements are eligible for up to a 45 percent discount on their flood insurance under the Community Rating System.
• Raise the deductible: By increasing the deductible on the flood insurance, the insurance rates may become more affordable.

NAR believes Congress should not let the rate phase-out go into effect until FEMA follows the new law, which required that the agency conduct an affordability report on these reforms and consider their impact before the reforms went into effect. That report is now long overdue. NAR has encouraged members to contact their members of Congress to delay the NFIP rate increases for grandfathered and newly purchased properties pending FEMA’s report.

NAR has provided additional information on the flood insurance issue online at realtor.org.

Triple Play Realtor® Convention in Atlantic City will offer a continuing education course, “Changes in the National Flood Insurance Program and FEMA Mapping” on Monday, Dec. 9 from 2 to 5 p.m. The session will cover the National Flood Insurance Program, the 2012 Flood Insurance Reform Act and the Map Modernization Initiative being conducted by the Federal Emergency Management Agency, which administers the NFIP.