The most important thing homeowners with flood insurance should know is the federal subsidies on homeowner’s flood insurance are going to phase out over the next four years.
The second most important thing for homeowners to know is to contact their insurance agent, broker or the city and county planning departments and ask questions.
As the subsidies decrease at a rate of 25 percent each year, property owners’ portions will increase until the subsidy reaches zero. At that point, homeowners become responsible for 100 percent of the premiums.
Most rates for most properties will more accurately reflect risk. Subsidized rates for nonprimary or secondary residences began phasing out in January. Subsidized rates for certain other classes of properties will be eliminated over time, beginning in October.
FEMA National Flood Insurance Program Compliance Specialist Roy McClure met with city and county officials, Realtors and surveyors Tuesday to discuss the National Flood Insurance Program.
He said the changes in NFIP subsidies are the result of the Biggert Waters Flood Insurance Reform Act of 2012 passed by Congress and signed June 6, 2012 by President Barack Obama. The law requires FEMA and other agencies to make a number of changes to the NFIP.
“Key provisions of the legislation require the NFIP to raise rates to reflect true flood risk, make the program more financially stable and change how Flood Insurance Rate Map updates impact policyholders,” he said. “The changes will mean premium rate increases for some, but not all, policyholders.”
He said the new law encourages program financial stability by eliminating some artificially low rates and discounts.
Several actions can trigger a rate change, according to McClure. Not everyone will be affected, but it is important to know the distinctions and actions to avoid or to take to lessen the impacts.
Some actions; such as buying a property, allowing a policy to lapse, or purchasing a new policy can trigger rate changes. Insurance agents should know about how changes may affect properties and flood insurance policies.
There are investments communities can make to reduce the impact of rate changes. FEMA can help communities lower flood risk and flood insurance premiums.
“Not everyone will be affected immediately by the new law, because only 20 percent of NFIP policies receive subsidies,” he said. “Talk to your agent about how rate changes could affect your policy.”
Congress created the NFIP in 1968 since most homeowners' insurance policies did not cover flooding and property owners who experienced a flood often found themselves financially devastated and unable to rebuild.
The NFIP was formed to fill that gap and was designed to incorporate community adoption of minimum standards for new construction and development to minimize future risk of flood damage. Pre-existing homes and businesses, however, could remain as they were. Owners of many of these older properties were eligible to obtain insurance at lower, subsidized rates that did not reflect the property's true flood risk.
In addition, as the initial flood risk identified by the updated NFIP, many homes and businesses built in compliance with existing standards received discounted rates in areas where the risk of flooding was revised. The "grandfathering" approach prevented rate increases for existing properties when the flood risk in their area increased.
After 45 years, flood risks continue and the costs and consequences of flooding are increasing dramatically.