Staying afloat with the rise of flood insurance rates

October 21, 2013

By Lee Gentry, PE

Floodphoto400Starting this October, some property owners should expect to see a rate increase because of changes in how flood insurance is managed on the federal level.

At LDA Engineering, our response is to offer our clients insight into what this mean on a local, state and regional level. The answer is of considerable importance since our communities and clients are affected by water issues, particularly in a year of record rainfall.

The changes arise from the implementation of the Biggert-Waters Flood Insurance Reform Act of 2012. The act addressed the National Flood Insurance Program (NFIP), which was created by Congress in 1968. The NFIP paved the way for communities in flood-prone areas to get much-needed insurance coverage by offering subsidized rates. However, payouts to property owners under the program have threatened its financial solvency because premiums often have not reflected the true risk of flood damage.

That is where the Biggert-Waters Act comes in – it is intended to restore the financial health of the NFIP, while still allowing access to flood insurance by property owners. Of course, since the act corrects the disparity between premiums and payouts, that means rate increases, some of which have already occurred.

Effective at the beginning of 2013, older, non-primary residences with subsidized rates were assessed premium increases, which will continue annually at 25 percent until they reflect full risk.  Also, as mandated by the act, effective Oct. 1, 2013, some business properties and “severe repetitive loss” properties that are currently receiving subsidized rates will see substantial increases.

The good news is the majority of property holders in the NFIP will not absorb higher costs because most aren’t receiving subsidized rates and are already charged correctly. But for those facing steep increases, such as those in areas that sustain repeated flooding, there are mitigation steps that could drastically reduce premiums.

States and communities in flood-prone areas would be wise to focus on grants and mitigation efforts and take advantage of the programs offered by the federal government. That information is available online at Hazard Mitigation Assistance.

The NFIP sets minimum floodplain management requirements for communities, and they have to meet them to participate in the program. The overall program is administered by the Federal Emergency Management Agency (FEMA), which gathers flood hazard data and develops flood insurance rate maps. FEMA makes that information available at FEMA Map Products. Also, this site allows users to enter ZIP codes to determine where map changes are underway, though the information is subject to change.

That data and maps are used to develop insurance plans, and they are offered by nearly 90 private companies that meet FEMA’s specifications. Information about Flood Insurance Providers is provided by the NFIP. The NFIP offers a comprehensive website that addresses flood issues and also offers community resources, including mitigation planning.

These October changes will have the biggest effect on property owners with lapsed and new policies; properties covered under Preferred Risk Policies; and properties affected by floodplain map changes.

For a thorough explanation of the Biggert-Waters Act, also known as “BW-12,” you can visit the federal website Flood Insurance Changes.  The documents available in the BW-12 Overview section of that site provide excellent summaries of the changes.

The potential effects of these changes on floodplain management, community planning and public education/outreach at the local, state and regional level are readily apparent.