“In July 2012, the U.S. Congress passed the Biggert (R-IL)-Waters (D-CA) Flood Insurance Reform Act of 2012 (BW-12) which calls on the Federal Emergency Management Agency (FEMA), and other agencies, to make a number of changes to the way the National Flood Insurance Program (NFIP) is run. ... Key provisions of the legislation will require the NFIP to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map (FIRM) updates impact policyholders.”

— FEMA website

I am assisting a family member sell his house (valued at $240,000), and in doing so discovered the impact of the Biggert-Waters change to the law with regard to flood coverage. This change took place Oct. 1, and it concerns the subsidies provided by FEMA to existing property flood policies.

Over the years the flood maps have been changed. My relative’s property was built to code in 1978 within Flood Zone B and is now in Flood Zone VE. This did not affect the cost of his flood insurance, as the property was “grandfathered” into the original flood zone designation. But as of October 1, houses have to be insured within their current flood zone.

This means that if you live in your house, you will have a 5 per cent tax added to your renewal this year, and then every year going forward you will have your premium increased by 25 per cent until you reach the “full risk rate” for insurance.

So what is this “full risk rate”? Let me share the numbers we are confronted with. The current policy is for $240,000 of coverage with a $2,000 deductible. The premium as of August was $1,365 a year. So that is the basis from which the 25 per cent yearly increase will occur. For the $240,000 coverage with a $2,000 deductible, the current “full risk rate” is $46,406 a year. Therefore, for this real example, the premiums for the next 16 years would be $1,706; $2,133; $2,666; $3,333; $4,166; $5,207; $6,509; $8,136; $10,170; $12,713; $15,891; $19,863; $24,829; $31,037; $38,796; and then in year 17 it reaches the $46,406, assuming the “full risk rate” does not increase in those 17 years.

But this is not the worst. If you want to sell your house, the existing flood insurance policy is not transferable any more. So the new homeowner would have a flood insurance premium of $46,406 per year. Now that is one way to halt the strengthening real estate market.

If this house is insured for $240,000 against all other perils (fire, wind and hail, theft, etc.) for $2,500 a year, why is the cost of flood insurance almost 20 times more?

Congress is considering a four-year delay for implementing the law, but that is not a solution as the nightmare will be upon us again. Contact your state and federal representatives and demand changes to this law or allow lenders to accept private flood policies immediately.


Country Club Drive