Flood Insurance Rate Uncertainty

Realtors® and homeowners across the country have been reporting significant increases in annual premium rates before NFIP rate changes took effect on October 1; this is raising concerns among consumers and Realtors® about decreased property values and a stalled housing market recovery.

Ed Connor, FEMA deputy associate administrator, Insurance, Federal Insurance and Mitigation Administration, said Congress took action to reform the NFIP and make it financially sound following several devastating storms.

“The last two major storms, Hurricane Katrina in 2005 and Hurricane Sandy in 2012 were the costliest storms in U.S. history,” Connor said. “Last year, the NFIP was forced to borrow money from Treasury; program debt is now $24 billion dollars.”

Flood insurance rates are dependent on risk levels, property type and location. Under the Biggert-Waters Flood Insurance Reform Act, rate increases for older primary residences go into effect when the policy lapses, the property is sold or a new policy is purchased.

Rates for commercial properties and non-primary residences are increasing by 25 percent per year until premiums reach the full actuarial cost. Changes to flood insurance rate maps in some communities may also affect the timing of increases, and some could go into effect immediately.

“This isn’t going to affect property owners in every state to the same degree,” said Thomas Hayes, FEMA chief actuary, Federal Insurance and Mitigation Administration. “There are going to be some counties that are harder hit than others; it’s going to depend on the location of the property and several other factors.”

Panelists told attendees that under the Biggert-Waters Flood Insurance Reform Act of 2012, homeowners could save $75,000 or more over 10 years if they build three feet above base flood elevation. Panelists also encouraged policy holders to talk to an insurance agent about their options and to obtain an elevation certificate.

NAR is a strong supporter of the NFIP and believes it is critically important to Americans and the nation’s economy since it increases the number of self-insured properties and reduces the cost of post-flood disaster governmental assistance. However, due to the unprecedented scope of premium increases, NAR recommends that FEMA take interim measures to ensure that the NFIP continues on a path towards financial solvency and actuarial responsibility without damaging the real estate recovery.
                             
In addition to delaying future premium increases until FEMA submits its affordability study, NAR recommends that FEMA issue proposed regulations for installment payments and appeals reimbursement; and that FEMA work to improve and publicize the Community Rating System program, which encourages community floodplain management activities that exceed NFIP’s minimum requirements, and rewards participating communities with lower premiums.

Other NAR recommendations include streamlining and improving the process for obtaining property elevation certificates, and improving and publicizing information and education resources for consumers, real estate agents, lenders, and insurers, among others.

NAR also calls on FEMA to convene a summit about the impact of premium increases on property owners. At the summit, industry experts could develop valuable recommendations for how FEMA could minimize the impact of future premium increases, strategize ways to help property owners and communities lower their rates, and discuss ways the real estate industry can partner with FEMA on those efforts.

Source:The National Association of Realtors®

Demystifying Flood Insurance

The real facts about the National Flood Insurance Program surprise even the most diligent homeowner. Don’t fall for these myths.

Myth #1: Hurricanes, not floods, are the No. 1 natural disaster and cause the biggest economic losses in the United States.
Hurricanes grab the headlines, but because floods happen in virtually every part of the country, they cause more losses than any other type of natural disaster. Homeowners insurance doesn’t cover floods. Only flood insurance covers flood damage to your home.

What causes floods?

• Rising rivers

• Storms

• Early snowmelts

• Man made problems from the construction of roads, shopping malls, homes, and industrial complexes

• Hurricanes

Myth #2: Everyone who lives in a flood zone has to buy flood insurance.

Nope. You must buy flood insurance only if yo
u meet all three of these criteria:

• You buy a home in a special flood hazard area where there’s a 1% chance of flooding in any year.

• Your community participates in the National Flood Insurance Program.

• You buy or refinance your home using a loan from a federally regulated financial institution, or a Fannie Mae- or Freddie Mac-guaranteed loan.

If you don’t meet these three requirements, no one will make you buy flood insurance. 

About 5.6 million Americans living in the more than 20,500 communities that participate in the flood insurance program buy flood insurance.

Myth #3: Flood insurance is always expensive
Flood insurance through the National Flood Insurance Program is sometimes expensive and sometimes cheap, depending on your home’s value, location, and height off the ground, as well as the value of your possessions.

• It can cost more than $8,000 a year if you buy the highest possible coverage of $250,000 for property and $100,000 for contents for a second home in the highest-risk areas.

• It can cost as little as $129 a year for $20,000 of rebuilding coverage and $8,000 in contents for your main home, if it’s in a low-risk area.

Premiums vary a lot based on where you live. If you want to buy $250,000 of building coverage and $100,000 of contents coverage for your main home, you’d pay about:

• $7,173 in a high-risk coastal area.

• $3,289 in a high-risk area.

• $1,798 a year in a low-to-moderate-risk area.

Myth #4: Taxpayers are footing the bill for federal flood insurance.

The NFIP doesn’t spend any tax dollars. The government sets the premium rates high enough to cover flood insurance claims and operating expenses in an average historical loss year. The program can borrow money from the U.S. Treasury when losses are heavy, but has to pay those loans back with interest.

To make sure it stays solvent, the NFIP is:

• Phasing out subsidies for second and vacation homes and homeowners..

• Improved the accuracy of flood maps.

Myth #5: Companies sell flood insurance, so the government doesn’t need to.

Private flood insurance is very expensive and only a handful of companies offer excess flood insurance to homeowners with whose homes are valued at more than $250,000. The National Flood Insurance Program is the only program offering low- and middle-income homeowners flood insurance. If it disappeared, those homeowners wouldn’t have another option.

Source: HouseLogic - Surprising Facts About Flood Insurance By: Dona DeZube Read more:  http://www.houselogic.com/home-advice/disaster-insurance/flood-insurance-facts/7/. Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®