Gonna be costly on the coast: Major Flood Insurance changes to take effect on April 1st.

Written by Kevin Reilly

NFIP_LogoThe National Flood Insurance Program (NFIP) is about to undergo some major changes as a result of a piece of legislation called the Homeowner Flood Insurance Affordability Act (HFIAA) of 2014 (HFIAA). These changes take effect on April 1, 2015 and will impact most of us in Long Beach. When I talk to people about these changes and the costs associated with them I get the same comments over and over, “They can’t do that.” Or “They’ll never do that.” I’m sorry to say, but they can and they did. Oh, and it had nothing to do with Sandy.

First off, all flood insurance policies will receive a surcharge. The surcharge is a flat fee applied to all policies based on the occupancy type of the insured building and is not associated with the flood zone in which the building is located in. The fee will continue to be charged on all policies, including full-risk rated policies, until all Pre-FIRM subsidies are eliminated. FIRM stands for Flood Insurance Rate Map and a home is considered pre-FIRM if it was built before there was a flood map for the area. Because these homes were built before the flood maps they are granted a discounted (subsidized) rate. For primary residences (single-family and individual condominium units, including renters [contents-only policies]) the surcharge will be $25.00 per year. For Non-Primary residents and business that charge jumps up to $250.

Some Flood insurance companies have already sent out letters asking policy holders to verify their primary residence, other companies are sending out the request as part of the renewal paperwork. The letters are titled “Verification of Primary Residence Status” and they are mandated by FEMA for NFIP policy ratings.The purpose is to determine if the insured location is the primary residence, which qualifies for preferred rating. DO NOT ignore this letter, if you do, the residence is assumed to be a non-primary residency and subject to the higher rates. This is just a surcharge so it’s not technically part of the rate increase.

The NFIP will also be implementing an annual rate increases on pre-FIRM subsidized policies. The rate-increases will have limitations set by HFIAA for individual premiums and rate classes. The maximum increase you would see of an individual policy would be 18% of the premium but the average rate would be about 15% of premium.  The rate increases will continue until the policy is paying the full-risk rate. No word on how that “full-risk rate” will be determined.

There is also something called the “Reserve Fund”. The legislation requires the establishment of a Reserve Fund to help cover costs when claims exceed the annual premium collected by the NFIP. Starting in April all policies will start contributing a fee to the Reserve Fund. Preferred Risk policies (residential and non-residential buildings located in moderate- to low-risk areas) will pay a fee of 10% of the premium and all others will pay 15%. This is a fee so it’s not considered part of your premium.

There are a few items in the legislation that are meant to help make the insurance more affordable, for example:

  • FEMA will begin offering a $10,000 deductible option for one-to-four family residences, which results in a 40% reduction in premium but if you are required to carry flood insurance your lender typically must first approve it.
  • Requires FEMA to offer monthly installment payments for premiums.
  • Removes the requirement of purchasing flood insurance for detached structures that do not serve as a residence.
  • Requires FEMA to consider flood mitigation activities that an owner or lessee has undertaken on a property, including differences in risk involved due to land use measures, flood-proofing.
  • Codifies the pre-Biggert-Waters basement exception to assure that homeowners with flood-proofed basements receive credit when their flood insurance rates are calculated.

Needless to say our flood insurance policies and what they will cost us is about to get very complicated and costly. The changes I described above will take affect when your policy renews.  n the meantime you can check with your insurance broker to see how the changes will affect your policy.

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24 thoughts on “Gonna be costly on the coast: Major Flood Insurance changes to take effect on April 1st.”

  1. This is nice.. not sure if lenders will approve it easily.

    “FEMA will begin offering a $10,000 deductible option for one-to-four family residences, which results in a 40% reduction in premium”

  2. Considering how much we have paid out of pocket after Sandy, and still waiting on Grant Money, it sounds like a no brainer to take the $10,000 deductible option for a 40% reduction. Will they reduce properties that have fully mitigated and are paying very minimal yearly premiums, such as $470 a year?

  3. What happens if you raised your house to meet the new codes? And what happened to LB trying to get grant money for those home owners whose home is a second property and want to raise it as a preventive measure? No news on that!

  4. Actually the Reserve fund is a fee. If I understand correctly our policies will go up the 15% on the premium plus the fees.

  5. That $10k deductible may need bank approval. If you are raised and mitigated you are already paying your full rate. .. $400.00 or so

  6. If you raised you are paying full rate. Your policy will remain low but You will still need to pay the fees. The city is trying to get HMGP funding for those not elevating right now

  7. The way I read it is only people who have had their policy for a long time (aka before there were flood maps) have subsidized rates, is that correct? I’ve only owned my house for 5 years, so I purchased my policy well after the flood maps had been laid out so I’m assuming I’m already paying full price? Granted the maps have been revised in the past 2 years, but I don’t believe it’s changed for me.

  8. BBK, The LB FIRM maps were last revised in 2009. I don’t believe anyone in LB or in the entire country is paying the full price (except those recently raised or above BFE) . We are all are benefiting from the soon to begin expiring discounts.

  9. If your house was built prior to 1968 (ish) than you are paying a pre- FIRM rate. Newer homes and elevated are paying their full rate but still will be paying the Fees

  10. I have had a $10,000 deductible on my policy for years, that is not new and I have a mortgage, not sure the bank can tell you what deductible you can choose on your policy

  11. @Anthony: Yes elevating reduces your flood premium to just a few hundred dollars. After elevating my house we went from almost $3,000 a year to about $400 for the full $250K and contents.

    @Kevin: Question in the original Biggert Waters act there were two different forms of subsidies. Those that were pre-FIRM and those that were built in compliance with the FIRM but subsequently were below the BFE when the FIRM was revised. How is that handled under the 2014 revision if you know?

    Those “full rates” are the $10,000 or so rates house a few feet below BFE in an “A Zone” and the $20-30,000 rates for those in “V Zones” that every one was throwing around when the original act was supposed to kick in and people were in a panic. They will eventually get there.

  12. You are referring to grandfathered policies. According to the NFIP properties that are in compliance with their existing rate map but get re-mapped into a higher cost area will qualify for a reduced rate policy. There are some crazy rules for qualifying for grandfathering so if you hear the maps are being updated make sure you check with your broker to see what may happen to your policy.

  13. Hi Kevin. Have you heard of anything to help those who were denied by NY Rising for assistance to lift their homes? (The non compliant who were substantially damaged and living on the water in AE flood zone)? Mandatory lift ordered by the town and flood insurance rates going up 18% per year but no assistance at all with $ to lift.

  14. I don’t understand. Didn’t they just amend the Biggert-Waters Act (within past few years) to eliminate those very provisions? (i.e. the 15-18% YOY increases until the household reaches full risk)

  15. I raised my home so I feel lucky at this point. However, I was also under the impression that the Biggerts-Water Law was amended to eliminate drastic rate hikes. It turns out that the 15% rate hikes is part of the amended bill. It was actually going to be worse than 15% rate hikes. I’m not a mathematician, but a 15% increase means that your rate will double every 5 years until its no longer subsidized. Therefore, the 8k flood insurance bill that everyone was scared of was only put off for 10 years.

    Something needs to be changed. My first floor was completely destroyed and I received 100k. That was about average for my neighborhood. With an 8k policy, you would pay that much in just 12 years.

    Its really sad that the NY Rising program came out as late as it did. (June of 2013) Most people were done rebuilding by then and didn’t want to tear it up to elevate.

  16. The other key point you are not mentioning is that if you make 2 claims in 10 years (Irene & Sandy), you lose the Preferred rate and are moved to Standard. If you were paying the grandfathered rate, that move alone by FEMA raises your policy costs 400% in one shot. All the stuff about phasing in the rate increases, goes away once you lose Preferred, and the 2 claims in 10 years clause is how FEMA screws you out of Preferred. Over time, unless the law is changed, the smart move for people without mortgages is to drop their flood policy completely.

  17. There’s only one route: Elevate or sell while you can. The Feds are basically confiscating your property. It’s time to get out.

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