By Lyle Adriano
Changes are coming in flood insurance, which some hope will address the growing problem of insuring flood risks in coastal areas of the country. These changes include more affordable and comprehensive private insurance options for property owners, and amendments to the Biggert Waters Flood Insurance Reform Act of 2012, among other things.
The National Flood Insurance Program (NFIP) is also being adapted to better serve the needs of property owners. The nearly 50-year old program has used an old-fashioned premium rating formula and obsolete flooding information that no longer holds true due to rising water levels and the increased occurrence of flooding.
The NFIP underwent overhauls that became effective last April 1, to alleviate the $25 billion accumulated deficit. Flood zones are being remapped, and the number of subsidized policies is being reduced until the total premium pool can reliably support flood losses. It may take 10 years to properly adjust premiums to adequately cover claims and eliminate the deficit.
The NFIP is also encouraging more private insurance companies to offer their services to the market. These companies are allowed to provide the same or even better coverage than the NFIP, but can use their own rate structures.
Biggert Waters was originally meant to address the deficient premiums of the NFIP by updating the flood zone maps and eliminating subsidies for properties built before 1974. The legislation, however, was met with opposition by the public and harshly evaluated when it became apparent it could potentially devastate the economy of flood-prone areas by raising premiums to near unaffordable levels. Premiums could have gone up by about 1,000% in areas of high flood risk.
Effective April 1, though, a more flexible rate correction methodology was passed—the Homeowner Flood Insurance Affordability Act. Thanks to these changes, property owners are now experiencing the following:
- Premium rate increases of 10% to 25% on each policy
- $25 surcharge on each policy on a primary home
- $250 surcharge on secondary homes and businesses
