Congress has passed legislation (Biggert Waters Flood Insurance Reform Act of 2012) that greatly alters the National Flood Insurance Program (NFIP) and, in some cases, this legislation will cause an increase in premiums.
Will the new legislation affect my flood policy?
It may. The biggest effect will be on policies that insure a home-built prior to the enactment of flood building codes in your community. This date varies by community but homes built before 1974 certainly fall into this category. In NFIP language, such homes are termed Pre-Firm Construction. Homes built after the enactment of flood building codes in your community are termed Post-Firm Construction.
The new rules for Pre-Firm homes take effect October 1, 2013 so any changes will occur the first time your policy renews after that date. Post Firm rules take effect October 1, 2014.
How were the rates on a Pre-Firm policy determined?
Since your home was built prior to enactment of flood building code requirements, your flood insurance policy was issued using “subsidized” rates. In other words, the premium charged for your policy is lower than the premium would be if the first floor elevation were considered in the rating process.
How can I determine if my home is Pre-Firm?
Your flood policy may state this on the declaration page or you can call your agent. If your home was built before 1974, it will be Pre-Firm.
My home is my primary residence and is an older home and is Pre-Firm Construction. Will the premium on my policy be higher when the policy next renews?
The answer depends on when you purchased your home. Note that NFIP defines a primary residence as one you live in 80% of the time.
- For homes purchased prior to July 6, 2012 - As long as you own your home, reside in it as your primary residence, and do not let your flood policy lapse, the premium on your policy will be continue to be based on the subsidized rate. You may experience a change in premium due an overall rate increase.
- For homes purchased between July 6, 2012 and September 30, 2013 – The next time your flood policy is renewed, you will required to provide a flood elevation certificate and your policy will be rated using the actuarial rates. Your premium will probably be higher.
- For homes purchased on or after October 1, 2013 – Your policy was rated with actuarial rates.
What happens if I decide to sell my Pre-Firm home?
If you sell your home (or the policy lapses or the dwelling ceases to be your primary residence), the flood policy for the new owner will be a new policy and the premium will be based on non-subsidized (actuarial) rates. The new owner will be required to obtain a flood elevation certificate and the premium on the new policy will be based on the elevation of the first floor as it compares to the base flood elevation for your area.
My Home is Post Firm construction. What changes should I expect?
No changes are forthcoming until October 1, 2014. Beginning that date, the actuarial rates based on current flood maps will be phased in over a 5 year period. Look at an example of how this might affect you. Your home was built in 1996 and the flood maps showed the home was in Zone AE and had to be built at 12 feet above Mean Sea Level (MSL). You built your home at the 12 foot level as required and your modest flood insurance premiums reflected your compliance with the rules. However, sometime after 1996, new flood maps were developed and the required first floor elevation is now 14 feet. Beginning October 1, 2014, your flood policy will be rated showing your first floor elevation to be 2 feet below the required elevation. Thus, your flood premium will be higher.
That same flood map change may also have changed the flood zone where your home is located from the AE zone to a VE zone. Flood rates are much higher in a VE Zone. Plus, the first floor elevation in a VE Zone is determined not by the elevation of the first floor as in the AE zone but by the lowest point of the beams under the first floor. Now your home is in a VE zone and is 3 feet below the required elevation and your premium will be even higher!
I have a POST Firm house that was in an AE zone but is now in a VE zone. The house has an enclosure at ground level which was properly vented. What effect do the new rules have on me?
Venting is not a consideration in a VE Zone so the first floor (ground level) elevation will be well below the required VE Zone elevation. The resulting premium could eventually be very high, perhaps unaffordable. You might consider having the enclosure removed. It would also be wise to obtain a new elevation certificate using the VE zone information. Using the new certificate, your agent can help you understand what your future premiums might be with the enclosure and without the enclosure.
I have a POST Firm house that has always been in a VE zone. The house was built with no enclosure and the policy rated that way. Now the house has an enclosure at ground level. What effect do the new rules have on me?
An enclosure less than 300 square feet in a VE zone is acceptable, although the enclosure does cause your premium to be higher. If the enclosure is greater than 300 square feet, you should consider removing or altering the enclosure.
Enclosures made of louvers, slats, lattice or screen may be of any size and do not affect the policy premium.
I thought the buyer of my home could simply assume my policy and keep the same rates.
Yes. A buyer can assume your policy but the buyer’s policy will be rated using the information from an elevation certificate.
What can I do?
We urge you to contact your Congressperson if the new law will have an adverse effect on you. A phone call to the South Carolina Department of Insurance (1-800-768-3467) would also be a good idea.
Two important items to remember –
- Be sure you pay your flood renewal premium on time. Even a one day lapse in coverage will trigger the higher rates.
- Be sure to contact your agent about your policy. Each case will be different and you need to have the correct information. If you do not get a satisfactory answer from your agent, call a C. T. Lowndes & Company office and we will probably be able to assist you.
Why has Congress made such dramatic changes to the National Flood Insurance Program (NFIP)?
Basically the flood program is under-funded and out of money and The US Treasurer Department is tired of bailing it out. Between 2005 Hurricane Katrina and 2012 Hurricane Sandy, the flood program is about 19 billion dollars in debt. Congress wants NFIP to stand on its own. The only way to accomplish that is to base the premium on actuarial rates.
So how will the new legislation affect the flood policy on my older vacation home?
Your vacation home (or it could be a home you rent to others) is a non-primary Pre-Firm home (defined as your living there less than 80% of the time). If you purchased the home prior to July 6, 2012, the new rules require your premium to be increased 25% at each renewal until actuarial rates are reached.
If you purchased between July 6, 2012 and September 30, 2013, you will be required to provide a flood elevation certificate and your policy will be rated using the actuarial rates at the next renewal date. Your premium will probably be higher.
How do I know what the actuarial rate will be?
The actuarial rate will be based on the elevation of the first floor of your home as it compares to the base flood elevation for your area. You will need to obtain a Flood Elevation Certificate which contains the information necessary to calculate the actuarial rate.
We suggest you obtain the elevation certificate now. Be sure to send your agent a copy so he can determine the actuarial premium. It is important to know that the elevation certificate does not need to be sent to the insurance company until such time as it is advantageous to you.
How do I obtain a flood elevation certificate? What is the cost?
Your agent can direct you to a surveyor or you can look in the Yellow Pages under Surveyors. The cost is usually in the $400-$500 range.
Here are some surveyors we are familiar with:
Ashley Engineering & Surveying, Inc. www.ashleyes.com 843-871-4416
Atlantic Surveying, Inc. www.atlanticsurvey.com 843-763-6669
East Cooper Land Surveying www.eastcooperland.com 843-856-1277
Kenerty Surveying 843-889-3600 firstname.lastname@example.org
Nielson & Associates 843-276-1379 email@example.com
Robert L. Frank & Associates www.robertfranksurveying.com 843-762-4608
I have heard about a 5% Reserve Fund. Can you explain this?
To offset the current multi-billion dollar debt, NFIP is assessing all policyholders an amount equal to 5% of their premium. In addition, the Federal Policy Fee is being increased by 10%, or from $40 to $44 in most cases.
Where can I read more about this new legislation?
Start at www.fema.gov/national-flood-insurance-program. Under Featured Topics, click on Flood Insurance Reform Act of 2012. You can scroll down the next page and select various topics.
www.floodsmart.gov is a good general site regarding the National Flood Insurance Program.