Residents who have been following news about the National Flood Insurance Program already know that rate changes and higher costs have been anticipated for almost a year. Now, the Federal Emergency Management Administration (FEMA) has released a four-page document
about what it could mean to you…and your wallet.
The genesis for the changes comes from heightened efforts on the part of the federal government to rein in spending that contributes to US budget deficits. Part of that effort has focused on eliminating subsidies for buildings that incur large, repetitive damage claims due to flooding or are located in flood-prone areas. By scaling back the subsidies, FEMA hopes to encourage effective flood remediation practices for existing buildings while discouraging new development in areas likely to see flood damage in the future.
What that means for those in special flood zones affected by the new criteria is a larger insurance bill starting this year, increasing until most subsidies have been eliminated. Discounts, lowered rates and grandfathered properties will all be affected; the changes include just about every property that has exposure to heightened flood risk. In our part of the Gulf Coast, that includes a lot of properties.
The full document is available here, but a just a quick survey of the high points will provide a clearer example of how wide-ranging these changes are.
From the FEMA document:
“The new rates will reflect the full flood risk of an insured building and some insurance subsidies and discounts will be phased-out and eventually eliminated. Rates on almost all buildings that are, or will be, in special flood hazard areas will be revised over time to reflect full flood risks. Based on various conditions set forth in the law, subsidies and grandfathered rates will be eliminated for most properties in the future.
Subsidies will be phased out for the following types of properties: non-primary residences, severe repetitive loss properties, business properties, and properties that have incurred flood-related damages where claims payments exceed the fair market value of the property. Policy rates will also increase based on one or all of the following circumstances:
- After a change of ownership;
- After there is a lapse in insurance coverage;
- When a new or revised flood insurance rate map is issued; or
- If there is substantial damage or improvement to a building.”
While currently subsidized properties that are non-primary residences will have the higher premiums phased in over four years, properties that are newly purchased will see the full risk rates applied immediately beginning later this year. Joining that group will be subsidized business properties, severe repetitive loss properties and properties with claim payments exceeding fair market value of the property.
Beginning in 2014, non-subsidized properties will see premiums increase. Even if your property is not subject to high-risk status today, any future flood zone remapping that includes it in such a zone will roll you into a higher premium classification. In cases where your property is in close proximity to a high-risk flood zone, FEMA suggests you consider enhancing your flood protection since you could be subject to the more stringent conditions if a remapping moves you into such an area.
There are a number of details and conditions that go into a determination of what you might face as a property owner when grappling with these new regulations, but the guidance
provided by FEMA will provide a useful beginning.
Our Public Works Department, though its Environmental Services group, has accelerated their efforts to reach the public on the topic of flood insurance and repetitive flood loss issues for the past several years. Daya Dayananda, Pasadena’s Assistant Public Works Director, said encouraging residents and businesses to secure adequate flood insurance ahead of a predicted active hurricane season is their highest priority. “Despite these changes in flood insurance premiums, the protection it provides is crucial to avoiding catastrophic losses due to flooding.”
Another strategy that may help to soften future increases is that of accumulating a higher point total in FEMA’s Community Rating System (CRS), an integrated method of measuring each community’s efforts in adequately addressing flooding issues. Lower CRS scores translate into lower flood insurance premiums for residents. The City’s Floodplain Management Plan, as part of our CRS, was adopted by City Council resolution in November of 2010, an outgrowth of Pasadena’s resolve to minimize the cost and impact of flooding in our community.
With the new FEMA insurance guidance in place, the Environmental Group now looks to reach out to those involved in real estate as brokers, lenders or insurance agents to partner in client education and broader insurance coverage across our community.
“Once a hurricane enters the Gulf a lot of insurance options are off the table", Dayananda says. “Hurricane season is a lot less stressful when you have that policy in your pocket.”