Wednesday, February 19, 2014

Hope for Those Hit by High Flood Insurance Premiums

The precarious financial state of the National Flood Insurance Program (NFIP) prompted the passing of the Biggert-Waters Flood Insurance Reform act in 2012. The act was an attempt to find a solution for the $24 billion deficit that the NFIP faced and to take the program to a stronger financial position. As per the provision of the Act, premium subsidies are to be phased out and new flood maps are to be drawn. There are about 5.5 million policy holders in the program and FEMA estimates that about 1.1 million (20%) receive subsidies. Under the Act, those who have second homes and people whose properties are flooded frequently will find their premiums increasing. In addition, over 575,000 policy holders will have to face higher premiums if they sell their homes or if they are subject to severe and frequent flood damage. There is no argument about the need to control the huge financial deficit that the NFIP is operating under so as to prevent the almost certain bankruptcy looming over it. But the hardship that will be faced by so many homeowners and the effect of people selling their homes because of unaffordable flood insurance will have a big negative impact on the real estate market in particular and the economy in general. The Senate has now come up with a measure of relief.

The Compromise

The Senate has joined the House of Representative in passing a compromise $1.1 trillion spending bill that will give some relief to a portion of those who face sharp premium increase. About 25% of policy holders will benefit from this. A bill that would have postponed premium increases by 4 years was expected to be introduced, but has apparently been side tracked. The current provision will only result in a delay of 6 months in the rate increases.

The issue of removing the subsidies is one that has caused passions to rise on both sides of the argument. The short delay in the premium increases has resulted in an increase in the tensions. The Chair of the House Financial Services Committee is a proponent of ‘free market alternatives’ to the existing program and along with other top republicans is not inclined to back away from taking measures to reduce the massive $24 billion deficit. Besides the huge existing deficit the question being asked is if it is fair for taxpayers to subsidize the insurance of the minority who are covered under the program.

On the other side of the argument are those who say that the large rate increases are nothing less than an eviction notice to those who have been paying their premiums regularly for years. And the rise in the number of homes that are for sale for this reason will drive down property value in a market that is still in the recovery stage. Many small coastal communities are afraid that a large number of residents will be forced to give up their homes and the communities would turn into ghost towns. In many cases, these people are required to have flood insurance as a condition to their mortgage.

At present it would seem that the short delay that affects only certain types of homeowners, is all that home owners in flood prone areas can hope for. The speaker of the House of Representative has said that it will not consider any 4 year postponement of the rate increases.

With an unacceptable $24 billion deficit on one hand and the prospect of premium increases that could lead to thousands losing their homes, the stage is set for a tough fight, with no clear winner in sight.

Even though FEMA subsidizes only 20 % of policies, our area is all subsidized. Palo Alto and Menlo Park, for example, are subsidized. The new rules will increase rates up to $6000 and require an elevation certificate $1000 cost for new home purchases or anyone who lets their current policy cancel.

Insurance by Allied brokers has a new private insurance market that offers half priced coverage with no elevation certificate required. Call us for this cutting edge option at: (650) 328-1000 or visit us at

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