After the devastating effects of Hurricanes Katrina and Sandy over the past few years, coastal regions have been paying closer attention to flood insurance. The Government Accountability Office (GAO) has released the findings of a study that focused solely on those individuals who have purchased flood insurance at its various levels. The Biggert-Waters Flood Insurance Reform Act was extended last July by President Obama to run an additional five years, until 2017, in order to better-provide subsidized rates for insurance holders. From the Act’s Fact Sheet: “The new law encourages Program financial stability by eliminating some artificially low rates and discounts. Most flood insurance rates will now move to reflect full risk, and flood insurance rates will rise on some policies.” The National Flood Insurance Program (NFIP) umbrellas various programs under one shingle, including the Repetitive Flood Claims, Severe Repetitive Loss Properties, Flood Mitigation Assistance programs.
“Rates must be set to cover the average historical loss year, including catastrophic loss years, in accordance with generally accepted actuarial principles,” reads the Biggert-Waters Flood Insurance Reform Act. The Act also called for the establishment of the National Flood Mapping Program, which keeps track of floodplains in order to better provide information to a region’s population.
Not surprisingly, those along the Gulf and East coasts have the maximum coverage for flood insurance, clearly in the wake of Hurricanes Katrina and Sandy. The program itself encompasses around 5.5 million policyholders, who account for around $1.3 trillion against $3.5 billion paid in premiums. Higher-median home prices often indicate a greater reliance on flood insurance, however; a majority of high-price homes purchase insurance that is far greater than their needs.
Of interest on the East Coast is the use of beach nourishment, which was once an allowed mitigation technique. No longer permitted under the Flood Insurance Reform Act, homeowners may no longer utilize septic rings, sandbags, gabions and other forms of coastal erosion/flooding preventative measures in order to create a barrier between their homes and rising coastal floodwaters.
One of the more interesting aspects of the Act includes the requirement that FEMA reach out to homeowners in regions that fall within the potential flood zone as to mandatory insurance requirements. Senators and House members are also immediately notified as to what regions are immediately within flood zones.
While premiums have changed a bit, the change hasn’t affected everyone. Rates have shifted upward a bit for those in higher-income housing, while in other regions, rates have remained largely the same.