| April 15, 2014
Hatteras Island Real Estate:On
March 21, President Obama signed into law H.R. 3370 – the Homeowner
Flood Insurance Affordability Act. This law amended several
provisions of the Biggert-Waters Flood Insurance Reform Act of 2012
(BW-12) which made major changes to the rate and premium structure of
the National Flood Insurance Program (NFIP).
National Flood Insurance Program update
By TOM HRANICKA
To refresh your
memory, in July 2012, Congress and the President approved the
Biggert-Waters Flood Insurance Reform Act of 2012. The purpose of
this legislation was to put the NFIP on solid financial footing by
increasing inadequate flood insurance premium rates until they
reflected the true actuarial risk associated with the properties that
were being insured.
The National Flood Insurance Program had
accumulated a deficit of about $24 billion resulting from losses
exceeding premium income due largely to claim payments related to
hurricanes Katrina in 2005 and Sandy in 2012. While well-intended, the
Biggert-Waters legislation was poorly drafted, resulting in increases
in flood insurance premiums that were so large that they could have
caused some policyholders to lose their homes.
legislation was enacted and after legislators began hearing from their
constituents about the potential financial impact of the changes, bills
were introduced in both the Senate and in the House of Representatives
to delay some flood insurance rate increases until the Federal
Emergency Management Agency (FEMA) completed a study on the
affordability of the new rates and proposed solutions to situations
involving the most severe increases. The result of these legislative
actions was the passage of H.R. 3370 – the Homeowner Flood Insurance
Affordability Act which the President signed into law last month.
Here are the highlights of H.R. 3370:
grandfathering on ALL post-FIRM properties – those that were built to a
Flood Insurance Rate Map standard. This includes all post-FIRM primary
resident policyholders, second home policyholders, and non-resident
policyholders. A policyholder and any subsequent owner of
property built in a flood zone will be allowed to continue to pay
premiums based on the flood zone and base flood elevation in place at
time of construction. The Flood Insurance Rate Map (FIRM) date for Dare
County is 1978 but the exact date may vary by town. (The date that
distinguishes pre-FIRM from post-FIRM properties on Hatteras Island is
October 6, 1978, and for Hyde County, it is January 1, 1975.) This
should make things "business as usual" for these properties given the
fact that FEMA never implemented the provision of the Bigger-Waters
Flood Insurance Reform Act of 2012 that removed grandfathering from
- Pre-FIRM primary resident policyholder rates may increase between 5 and 18 percent a year.
second homes: Owners of these properties will continue to see a 25
percent annual rate increase until actuarial risk rates are achieved.
This remains unchanged from BW-12. However, buyers of these properties
will now be allowed to assume the flood insurance policy rather than
having to pay the full risk rate at time of purchase.
commercial properties and severe repetitive loss properties will also
continue to see a 25 annual rate increase until actuarial risk rates
are achieved. This remains unchanged from BW-12. However, buyers of
these properties will now be allowed to assume the flood insurance
policy rather than having to pay the full risk rate at time of purchase.
the annual average rate increase cap from 20 percent to 15 percent.
However, the individual policy rate increase is capped at 18 percent.
- Allows for residential deductibles up to and including $10,000.
- Excludes detached structures that do not serve as a residence from the mandatory flood insurance purchase requirement.
- Restores the threshold for substantial improvements from 30 percent back to 50 percent of market value.
- Requires FEMA to offer monthly installment payments for premiums.
any premium paid by property owners after the passage of Biggert-Waters
(July 6, 2012) that was in excess of the 18-25 percent rate limit
increases. This provision may take up to 18 months to be implemented by
a $25 annual surcharge on all new or renewed primary resident policies
and a $250 annual surcharge on all non-residential and second-home
policies. Premium surcharges will be deposited in a Reserve Fund.
regards to any rate structure changes needed, such as establishing new
rates for higher deductibles, FEMA has from 8 to 18 months to implement
these provisions. FEMA's fiscal year is Oct. 1 to Sept. 30.
Therefore, annual rate changes become effective Oct. 1.
more information, the National Association of Realtors has published an
Issue Brief and Section by Section Summary of the new law: http://www.ksefocus.com/billdatabase/clientfiles/172/4/1983.pdf.
addition, a short video was distributed by the Outer Banks Association
of Realtors, the Outer Banks Home Builders Association, and NC 20
regarding the highlights of the Homeowner Flood Insurance Affordability
a footnote to the two pieces of legislation discussed in this article,
there is a third issue which could potentially impact flood insurance
rates. This factor is the upcoming changes in the Dare County and Hyde
County Flood Insurance Rate Maps. As I understand it, the preliminary
version of the new maps should be available for review toward the end
of this year with the final maps taking effect in 2015 for both
Early reports indicate that there may be a
significant decrease in the number of properties in Dare County that
will be located in flood zones that are required to have flood
insurance when the property is covered by a mortgage. We won’t really
know anything for sure until the final maps take effect, and the
initial reports do not say anything about the effect on an individual
The NFIP legislation is complex. Therefore, you
should consult with your personal insurance agent to determine the
impact, if any, of the original Biggert-Waters law and H.R. 3370 on
your specific situation.
legislative summary was reprinted with permission from the Outer Banks
Association of Realtors. NC-20 is a partnership of the 20 coastal
counties in North Carolina dedicated to economic development of the
Hranicka is an associate broker with Outer Beaches Realty. Questions,
comments, or suggestions for future articles may be sent to Tom
Hranicka at P.O. Box 237, Avon, NC 27915, or e-mail to [email protected] )
Copyright © 2014 Tom & Louise Hranicka. All rights reserved.