Residing, or doing business in an area at risk for flooding can have its challenges. Should the mortgage on your home or business property be federally insured or regulated, the mortgagee will be required, in accordance with Congress and the National Flood Insurance Program (NFIP) to carry flood protection insurance, an added expense which is currently on the rise. While those in low to moderate flood risk areas do not fall under this mandate, it may still be required by some lenders and is recommended. Read on to find out why rates are climbing, and what you can expect in the near future.
Defined for insurance purposes, a flood typically constitutes an area where two or more premises, or two or more acres of land which, under normal circumstances are dry, are overrun by the flow of mud or water. Causes may include significant or rapid rainfall, melting snow, drainage system failure, breached levees or hurricanes. Some interesting facts on flooding include:
- Flooding occurs in each of the 50 states
- As little as two feet of water is needed to carry away a car
- Averaging costs over the past decade, the cost of flooding in the United States sits at $2.9 billion per year
- Flooding is ranked as the number one natural disaster in the US
- Even one inch of standing water can cause pricey damage to your home or business
- The risk of flooding in a given area may be increased by developing the land and altering the path of natural runoff
The Flood Insurance Reform Act of 2012
US Congress enacted the FIRA in 2012 to act as a vehicle for changes in the management of the NFIP, by such agencies as the Federal Emergency Management Agency (FEMA).Highlights of this act include:
- A requirement by the NFIP to increase its rates based on true flood risk.
- An increase in the financial stability of the program.
- Changes as to what impact Flood Insurance Rate Map (FIRM) updates have on existing policy holders. For example, when maps change, a property where rates increase as a result will see these rates phased in at 20 percent per year over the course of five years.
As of July 1, 2012, flood insurance rate increases of 25 percent per year will be allowed until such time as actuarial rates are realized, and subsidized rates are no longer in effect for certain classes of structures, including:
- Commercial properties
- Vacation and second homes
- Those properties which routinely flood
- Properties under new ownership
Thanks to the storm activity created by Superstorm Sandy, and Hurricanes Irene and Lee, the NFIP found itself paying out far more than it took in, leaving taxpayer dollars to fund the gap. In an effort to make the NFIP solvent, substantial rate increases have been put into effect as sea levels continue to rise and storm surges increase in strength and inland reach.
Congress created the NFIP back in 1968 as a means of protection for property owners at risk for flooding. With the increased storm activity in recent years, this once sustainable program has become a liability itself, triggering the need for reform and causing flood protection insurance premiums to rise at an alarming rate.