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Flood Insurance Update
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Bigger Premiums from Biggert-Waters
Many flood insurance policyholders are staring down rate increases and wondering where they came from. The answer is the Biggert-Waters Act of 2013. The purpose of the law was to raise revenue for the National Insurance Flood Program, which has been under water for several years.  Ok, that’s my only flood insurance joke. Financially speaking, the program is a loser, with the Federal Government (read: taxpayer) subsidizing many flood claims while keeping flood insurance premiums down.  Something had to be done to bring the program back into the black, and treating risks as risks made sense.  The hard fact is that in areas where flood premiums are already high they are still getting large increases, and will continue to have increases unless some Federal relief comes.

Affect on Home Buyers
Home Buyers face an even more difficult proposition.  Instead of the 25%/year premium increases that in-force policyholders are experiencing, a home buyer who is required to buy flood insurance will get the new, fully-underwritten premium.  In other words, no easing into the new rates at a rate of 25% per year.  With new laws requiring lenders to be precise in their closing costs estimates and the already tight loan underwriting guideline – home buyers would be very wise to double-check the flood insurance requirement and exactly how much the premium will cost.

How Much?
Initially we were told that rates would go up 25%/year for 5 years.  Then we were told to ignore that last part about a 5-year max.  Great… For policy holders with the PRP – Preferred Risk Policy – the increases will be in the neighborhood of $100.  For those outside of the PRP areas it will be much more.  It is unknown at this point how long it will take to increase the premiums up to the point where all properties are rated at their proper risk-related rate.  But this just goes to show how much subsidy money there has been in the flood insurance marketplace.

Relief in Sight?
Biggert -Waters went into effect on 10/1/2013.  It seemed like the next day we were hearing the screams of the damned (people opening their flood insurance bill).  In the first week of October Maxine Waters (co-author) was talking about emergency legislation to kill her own law.  The Senate was expected to act before Christmas.  Just yesterday news of budget deal in the Congress including “some relief” from the Biggert-Waters increases, but best indications are that it is an 8-month delay for a fraction of affected policyholders.  We expect clearer details soon, but both the House and the Senate leaders have been clear that they are in no hurry to roll back the entire law.  I would never pretend to know how the legislature will act on any particular law, but it seems that they only thing that will provide relief is when the end of the new “delay” comes and angry policyholders with large increases once again make noise with their elected officials.