Uncertainty surrounding drastic increases in flood insurance premiums for coverage under the National Flood Insurance Program (NFIP) is negatively impacting transactions and the nation’s real estate recovery. Experts from the Federal Emergency Management Agency, which manages the government’s flood insurance program, spoke to Realtors about the implications of recent changes to the flood program during the “Update on Reforms to the National Flood Insurance Program” forum at the 2013 Reealtors Conference & Expo.
Realtors and homeowners across the country were already reporting significant increases in annual premium rates before NFIP rate changes took effect on October 1; this is raising concerns among consumers and Realtors about decreased property values and a stalled housing market recovery.
Ed Connor, FEMA deputy associate administrator, Insurance, Federal Insurance and Mitigation Administration said increased rates were an unavoidable result of several devastating storms.
“The last two major storms, Hurricane Katrina in 2005 and Hurricane Sandy in 2012 were the costliest storms in U.S. history,” Connor said. “Last year, the NFIP was forced to borrow money from Treasury; program debt is now $24 billion dollars.”
Flood insurance rates are dependent on risk levels, property type and location. Under the Biggert-Waters Flood Insurance Reform Act, rate increases for older primary residences go into effect when the policy lapses, the property is sold or a new policy is purchased.
Rates for commercial properties and non-primary residences are increasing by 25 percent per year until premiums reach the full actuarial cost. Changes to flood insurance rate maps in some communities may also affect the timing of increases, and some could go into effect immediately.
“This isn’t going to affect property owners in every state to the same degree,” said Thomas Hayes, FEMA chief actuary, Federal Insurance and Mitigation Administration. “There are going to be some counties that are harder hit than others; it’s going to depend on the location of the property and several other factors.”
Panelists told attendees that under the Biggert-Waters Flood Insurance Reform Act of 2012, homeowners could save $75,000 or more over 10 years if they build three feet above base flood elevation. Panelists also encouraged policy holders to talk to an insurance agent about their options and to obtain an elevation certificate.
NAR is a strong supporter of the NFIP and believes it is critically important to Americans and the nation’s economy since it increases the number of self-insured properties and reduces the cost of post-flood disaster governmental assistance. However, due to the unprecedented scope of premium increases, NAR recommends that FEMA take interim measures to ensure that the NFIP continues on a path towards financial solvency and actuarial responsibility without damaging the real estate recovery.
In addition to delaying future premium increases until FEMA submits its affordability study, NAR recommends that FEMA issue proposed regulations for installment payments and appeals reimbursement; and that FEMA work to improve and publicize the Community Rating System program, which encourages community floodplain management activities that exceed NFIP’s minimum requirements, and rewards participating communities with lower premiums.
Other NAR recommendations include streamlining and improving the process for obtaining property elevation certificates, and improving and publicizing information and education resources for consumers, real estate agents, lenders, and insurers, among others.
NAR also calls on FEMA to convene a summit about the impact of premium increases on property owners. At the summit, industry experts could develop valuable recommendations for how FEMA could minimize the impact of future premium increases, strategize ways to help property owners and communities lower their rates, and discuss ways the real estate industry can partner with FEMA on those efforts.