In 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 which calls on FEMA and other federal agencies to make a number of changes to the way the National Flood Insurance Program (NFIP) is managed.
Let’s go back in time to the late 1960s when flood insurance was nearly impossible to secure from the private market. In order to meet the needs of homeowners across the country, lawmakers decided that the government needed to intervene and provide help to residents along the coast. The program, which was set-up to be self-sustaining, was successful for several decades until it was put to the test beginning in 2005 with Hurricanes Katrina, Rita, and Wilma. These devastating storms wreaked havoc not only on the communities they directly hit, but also the federal flood insurance program that had provided coverage for nearly forty years. The result: NFIP was no longer sustainable, surpassing its budget and falling $24 billion in debt.
Fast forward to 2012 when lawmakers once again convened to discuss the nation’s flood insurance needs. With 5.6 million NFIP policyholders and the rising cost of natural disasters, it became necessary to re-examine the long-term sustainability of the program. A study found that current premium rates were not enough to cover the program’s anticipated costs. The result of this study and subsequent discussions among Congress was the passage of the Biggert-Waters Act.
The Bigger-Waters Act will extend the NFIP for five years while requiring significant program reform including flood insurance premiums, flood hazard mapping, grants, and the management of floodplains. Many of the proposed changes are designed to create long-term self-sufficiency of the program.
How will these changes impact you? As a coastal state, South Carolina homeowners can expect to see an increase in flood insurance premiums. While initial reports estimate a premium increase of 25% annually, some experts fear the increase will be much greater. A $400 annual premium, for example, could increase to $4,000 and even as high as $15,000, according to some worse-case scenarios.
The NFIP and FEMA are currently remapping flood zones. Under the Biggert-Waters Act, flood insurance subsidies for homeowners in high-risk flood zones are being eliminated. But redrawn flood maps now require many more homeowners to purchase insurance, which is often required by banks as part of the mortgage. Regardless of whether a homeowner has held a policy for years or they are now required to carry it, there will be a substantial increase in cost for coverage. This is an issue of concern in the affordable housing sector.
To qualify as affordable housing, a homeowner cannot pay more than 30% of their monthly income on housing costs. This includes rent/mortgage, utility bills, and insurance. If premiums rise as they are expected to, the impact will be detrimental on the individuals and families that already struggle to afford housing.
But there is hope. Last month, legislators introduced the Homeowner Flood Insurance Affordability Act to propose a four-year delay to changes to the NFIP, halting rate increases under the FIRA until two years after FEMA completes the affordability study as mandated under the law. The delay will allow ample time to conduct thorough research to determine the long-term impact these proposed rate hikes will have on homeowners.
As we wait to see what comes of the proposed rate increases, it is recommended that you review your flood evaluation certificate to determine your level of elevation, and contact your insurance agent if you have any questions.