Are you familiar with the Biggert-Waters Flood Insurance Reform Act? If not, you should be. Many coastal area homeowners who have been affected by increases in property insurance should brace themselves for another large increase.
The act was passed last July less than four months before Hurricane Sandy devastated coastlines in New York and New Jersey. The act is an effort by Congress to recover losses to the government’s National Flood Insurance Program. Most of the losses that the act intended to recover were from Hurricane Katrina in 2005. Although the act is going to up cost for homeowners the program has been designed to make sure that people who live in flood prone areas will still have access to insurance as many private insurers are dropping out of the market.
Under the new bill, subsidies that many homeowners have enjoyed on the government’s program since the mid-1970s will go away causing premiums to sore, particularly for second homes and investment properties located in flood zones.
- According to the Association of State Floodplain Managers, the program will remove subsidized rates for the following classes and allow rates to increase by 25% per year until actuarial rates are achieved:
- Any second homes or vacation properties
- Any service repetitive loss property
- Any property that has incurred flood related damages that cumulatively exceed the fair market value of the property
- Any business property
- Any property that after the date of the Bill has incurred substantial damage or has experienced substantial improvement exceeding, 30 perfect of the fair market value of the property.
- Any policy for which the owner has reduced a FEMA mitigation under HMGP, or for a repetitive loss property or severe repetitive loss property.
The act also removed two so-called grandfather clauses that have subsidized rates. Congress has even taken away the clauses that protected people who built their homes before the flood insurance rate map was created.
Additionally, when flood maps change, a property that has higher rates as the result of a new map shall have the rates phased in over a five-year period at 20% per year. We understand that is going to be a long process for many people and LPL is here to try and help you find the answers you’re looking for. If you have a question about your flood insurance please give us call.
