April 18, 2016

Hatteras Island Real Estate: Changes in flood insurance costs


Beginning on April 1, a number of changes took place in the National Flood Insurance Program (NFIP). The changes that could have the most direct effect on policyholders are those related to premium increases.

As background to the current increases, it has been widely reported that the National Flood Insurance Program is anywhere from $23 billion to $25 billion in debt. This deficit is the result of NFIP claims exceeding the program’s premium income, starting with Hurricane Katrina on the Gulf Coast and continuing through Hurricane Sandy, which heavily damaged properties from New Jersey northward.

In an attempt to remedy this situation, Congress directed the Federal Emergency Management Agency to get the NFIP program on more solid financial footing. Efforts to achieve this goal have been ongoing for the past few years.

In July 2012, Congress and the President approved the Biggert-Waters Flood Insurance Reform Act of 2012.  The purpose of this legislation was to enhance the NFIP’s fiscal situation by increasing inadequate flood insurance premium rates until they reflected the true actuarial risk associated with the properties that were being insured. 

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.

To correct these deficiencies, in March 2014, President Obama signed into law H.R. 3370 – the Homeowner Flood Insurance Affordability Act.  This law amended several provisions of the Biggert-Waters Act in order to moderate some of the most egregious unintended consequences of that legislation.

The changes that took effect on April 1 are part of the game plan to ultimately raise flood insurance rates to the point where the NFIP program is once again financially self-sustaining. The total average premium increase for all NFIP policies will be 9 percent. The maximum rate increase for any individual policy is expected to be 18 percent. For businesses, the cost will be even higher.

The actual increase for an individual policy will be based on a number of underwriting criteria, such as flood zone, year built, and property type. These increases are in addition to the congressionally mandated policy surcharge of $250, and a federal policy fee of $25 to $50, depending on the type of policy that an individual has.

It should be noted that local flood insurance rates can be expected to be affected by the new Flood Insurance Rate Maps for Dare County, which are scheduled to be released for preliminary review later this year.

Matters relating to insurance can be confusing, so the best advice for homeowners is to contact their insurance agent to determine what impact, if any, the April 1 changes may have for their individual situations.

(Tom Hranicka is a broker with Outer Beaches Realty. Questions, comments, or suggestions for future articles may be sent to Hranicka at P.O. Box 280, Avon, NC  27915 or emailed to [email protected] Copyright 2015 Tom & Louise Hranicka.  All rights reserved.)

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