NFIP Biggert-Waters Flood Insurance Reform Act

Published on November 07, 2013 with No Comments

It’s known as the Biggert-Waters Flood Insurance Reform Act. If it’s not halted or dramatically amended in the next few months, it will be known in flood-prone areas of the country by profanity-laced labels. The act could have a profound effect on property owners in flooded areas. If you are one of those people this law could cost you, literally.  Flood insurance has been a staple of development since 1968 when it was created by the Federal Government.  The policy is underwritten by the American people and managed by FEMA now a part of The Department of Homeland Security. There are more than 20,200 communities, and as of June 30, 2011, the program had nearly 5.6 million policies in force with a total insured value of $1.246 trillion. While obviously many of those are on the coasts there are also many lake and riverine properties that would not have been developed had it not been for the security that the National Flood Insurance (NFIP) program brings. The major glitch has been that the program is not and has not been actuarially sound; it is hemorrhaging money and requiring bailouts from the Federal Reserve. This has led to last minute deals in congress to keep the program authorized and funded, usually year to year. This perennial revisiting of the problems posed by the deficit that NFIP runs is scheduled to change with the implementation of the Biggert-Waters Acts of 2012.
The most dramatically affected will be structures in the A and V zones. You should know what zone you live in.

  • Flood Insurance – including      claims handling will increase in rates for non-compliant structures where      average rates were less than $2000 per year now climbing to $12,000, even      $30,000 per year depending on elevation and location.
  • Flood Hazard Mapping – use      of DFIRMS and remapping careful study of the construction of levees and      dams
  • Grants –      mostly hazard mitigation grants
  • Management of Floodplains –       including stricter compliance with the 50% rule and other components      of the Code of Federal Regulations 44 (CFR 44)

The program has never been set up to earn a pillow or reserve like other insurers are required to do. This is fine in a year with light flooding but in years following a Katrina in 2005 or almost as bad Sandy in 2012 it is catastrophic. Most of the policies in the country are properly priced and work as they should. In fact more than 80 percent of policyholders (representing approximately 4.48 million of the 5.6 million policies in force) do not pay subsidized rates. So about 20 percent of all NFIP policies pay subsidized rates. Only a portion of those policies that are currently paying subsidized premiums will see larger premium increases of 25% annually starting this year, until their premiums are full-risk premiums. Those that will see the biggest effects the quickest are as follows:

  • Non-primary residences.
  • The concrete block slab on grade houses.
  • Businesses and severe repetitive loss properties – those that over a short number of years have claims that collectively exceed the appraised value of the property.

Subsidies will no longer be offered for policies covering:

Newly purchased properties –      this will greatly affect the marketability of pre-firm or those properties      not paying fair rates per the loss potential.

  • Lapsed policies –      this is extremely important as many people do not seem to feel the need      for flood insurance and will purchase the policy following a storm and      then eventually not renew
  • New policies –      covering properties for the first time

The NFIP is therefore to a large number of policy holders becoming more strict and stringent and certainly does not qualify as a policy that would, “make one whole”. If you are adversely affected call your Congressmen or Senator to express your displeasure, they are there to serve.

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