Big changes may be coming yet again to the National Flood Insurance Program
Flood Insurance is one of those topics that people don't like to talk about, but with Florida leading the other states with almost 1.8 million flood insurance policies, residents need to be aware that the current national flood insurance program is set to expire on September 30, 2017.
The last time the National Flood Insurance Program expired, Congress made multiple short term extensions and actually let the program lapse 4 times before they finally got their act together and passed the reauthorization act in 2012. That legislation raised policy premiums in coastal areas so high that it was amended by Congress 2 years later.
We now find ourselves watching Congress yet again debate the 2 flood insurance bills, one in the House and one in the Senate. Congress is again considering major changes to the National Flood Insurance Program to address the $25 billion debt it is facing.
If Congress can't pass a new flood insurance bill before October 1st, FEMA loses it's authority to write new policies (current policies would remain in effect), which could disrupt real estate sales of properties located in flood zones in our area.
Right now members of Congress can't even agree on the length to extend the National Flood Insurance Program, one bill would extend it for 10 years, the other 5 years -- but there is no certainty that either of these timelines would remain in a final bill.
FEMA is pushing Congress to move a portion of the risk to private insurance companies. Some in Congress want to offer mitigation credits to reduce flood insurance premium rates for properties that have had flood mitigation procedures implemented to reduce flooding potential.
The House bill would increase coverage limits from $250,000 to $500,000 for residential structures and from $500,000 to $1,000,000 for multifamily and business structures. It would also require FEMA to cap annual premiums charged for certain flood policies at $10,000 for 5 years. The cap would be adjusted for inflation every 5 years.
A major sticking point between the 2 bills is how to establish premiums -- should they be based on a property's risk of flooding or instead the estimated cost to rebuild after a flood? Some are advocating pushing to prioritize reducing flood risks for homes and businesses rather than subsidizing premiums for low or moderate income property owners
.
Another fight will be over the issue of "grandfathering," which allows property owners to keep their lower insurance rates if they built to previous flood mitigation standards established by the Federal Emergency Management Agency. Several House Republicans want grandfathering eliminated, arguing it forces ratepayers to subsidize wealthier property owners who had previously followed FEMA's guidelines. But eliminating grandfathering and calculating premiums based solely on risk could lead to skyrocketing costs, critics of the House plans argue. Arguments also surround a House proposal to raise the minimum rate of premium increases from 5 percent to 8 percent.
One of the major disagreements is what to do with properties that flood repeatedly. Those properties represent just 1% of the policies but account for up to 30% of the losses. Florida has more than 10,000 such properties, many are older homes built before the flood insurance program was implemented. Both sides acknowledge that private insurers would most likely not be interested in writing insurance for that 1%.
And neither bill addresses how to fund mega-flood events, such as Hurricanes Katrina and Sandy.
Homeowners in flood zones should pay careful attention to the actions of Congress between now and September 30th. As we saw in 2012, changes to the National Flood Insurance Program can have a serious financial impact on homes located within designated flood zones in our area, especially those built pre-FIRM.
The last time the National Flood Insurance Program expired, Congress made multiple short term extensions and actually let the program lapse 4 times before they finally got their act together and passed the reauthorization act in 2012. That legislation raised policy premiums in coastal areas so high that it was amended by Congress 2 years later.
We now find ourselves watching Congress yet again debate the 2 flood insurance bills, one in the House and one in the Senate. Congress is again considering major changes to the National Flood Insurance Program to address the $25 billion debt it is facing.
If Congress can't pass a new flood insurance bill before October 1st, FEMA loses it's authority to write new policies (current policies would remain in effect), which could disrupt real estate sales of properties located in flood zones in our area.
Right now members of Congress can't even agree on the length to extend the National Flood Insurance Program, one bill would extend it for 10 years, the other 5 years -- but there is no certainty that either of these timelines would remain in a final bill.
FEMA is pushing Congress to move a portion of the risk to private insurance companies. Some in Congress want to offer mitigation credits to reduce flood insurance premium rates for properties that have had flood mitigation procedures implemented to reduce flooding potential.
The House bill would increase coverage limits from $250,000 to $500,000 for residential structures and from $500,000 to $1,000,000 for multifamily and business structures. It would also require FEMA to cap annual premiums charged for certain flood policies at $10,000 for 5 years. The cap would be adjusted for inflation every 5 years.
A major sticking point between the 2 bills is how to establish premiums -- should they be based on a property's risk of flooding or instead the estimated cost to rebuild after a flood? Some are advocating pushing to prioritize reducing flood risks for homes and businesses rather than subsidizing premiums for low or moderate income property owners
.
Another fight will be over the issue of "grandfathering," which allows property owners to keep their lower insurance rates if they built to previous flood mitigation standards established by the Federal Emergency Management Agency. Several House Republicans want grandfathering eliminated, arguing it forces ratepayers to subsidize wealthier property owners who had previously followed FEMA's guidelines. But eliminating grandfathering and calculating premiums based solely on risk could lead to skyrocketing costs, critics of the House plans argue. Arguments also surround a House proposal to raise the minimum rate of premium increases from 5 percent to 8 percent.
One of the major disagreements is what to do with properties that flood repeatedly. Those properties represent just 1% of the policies but account for up to 30% of the losses. Florida has more than 10,000 such properties, many are older homes built before the flood insurance program was implemented. Both sides acknowledge that private insurers would most likely not be interested in writing insurance for that 1%.
And neither bill addresses how to fund mega-flood events, such as Hurricanes Katrina and Sandy.
Homeowners in flood zones should pay careful attention to the actions of Congress between now and September 30th. As we saw in 2012, changes to the National Flood Insurance Program can have a serious financial impact on homes located within designated flood zones in our area, especially those built pre-FIRM.
