Making Sense of the Biggert Waters Flood Reform Act of 2012
We have all heard the recent horror stories about the upcoming legislative changes that affect flood insurance. There is much truth to what is happening but we thought it would be appropriate to set the record straight and provide some facts on how these changes will affect those with flood insurance policies. The major talking points are outlined below.
This reform truly affects roughly 20% of the flood insurance policies across the US, but the number is closer to potentially 60% of properties in Pinellas County
The maximum annual premium increase cap is increased from 10% to 20%
There is now a 5% reserve fund charge applies to all those considered in a higher risk flood zone
Homes built prior to 12/31/1974 that are not primary residences will experience a 25% surcharge each year until an actuarial rate is met. An elevation certificate will now be required to determine the full rate for these properties. Any new policy purchased, assigned or lapsed between 07/06/12 and 09/30/2013 using subsidized rates (not rated using an elevation certificate) will require an elevation certificate at the first renewal of 01/01/2013 or later. If no elevation certificate is obtained, tentative rates may be used for one year only
Any new policy, assigned policy or lapsed/reinstated policy 10/01/2013 or later that was constructed before 12/31/1974 that lies in a FEMA Special Flood Hazard Area requires an elevation certificate for rating. The option to use subsidized rates is no longer available
We realize this sounds confusing but the real takeaway is that most homes built prior to 12/31/1974 will now be required to have an elevation certificate. This certificate results from a land survey that shows the relationship between the property in question and the “base flood elevation” which reflects probability of flood damage to the property. Historically, these rates were subsidized using a “worst case” rate. These properties will now be based on actuarial underwriting data according to FEMA and in some instances will result in astronomical premiums. Our agency recently experienced a clients renewal that went from $1800 to $12,000 per year. Also of importance to note, if you have a mortgage and are in a flood zone that the mortgage company is required by this act to force you to carry flood insurance or they can “force place” insurance or buy insurance on your behalf and charge you for it in arrears. If the mortgage company does not comply, they stand to be fined up to $2000.
So what can you do about it? Here are a few items we are advising our clients on. Look at higher deductibles for both building and contents coverage. Many people will be surprised to see that they have very low deductibles, some as low as $500. Increasing to $2000 or $3000 will lower the premium substantially. There are more changes slated for October 2014 that will affect grandfathered properties, that is properties that were built to code at the time of construction where the flood zone unfavorably changed. These properties also stand to see major increases over the next years if nothing changes between now in then. Please contact our office if you want to further discuss these changes. We plan to stay informed on the upcoming changes and can provide you more information as it becomes available to us. Please follow our blog at www.getstrategicins.com/blog