Flood insurance is a hot topic in Collier County because of the recent changes by FEMA to flood zones. Since it was a concern for many of our clients, we sought out the help of Ray Faubion, Vice-President of BB&T Insurance Services.
The Biggert Waters Flood Insurance Reform Act of 2012 was signed into law effective July 6, 2012. While there have been challenges to parts of this law, and possibly more to come, it is currently moving forward like a tidal wave.
Why was this piece of legislation passed by Congress and the President?
The National Flood Insurance program is some $30 billion in debt. Congress has delayed taking action for several years. The goal is to make the program self-sufficient. It simply could not be continued in its prior form.
What will be done to accomplish this goal?
Removing rate subsidies that have existed since the program was founded in the late 1960’s, thereby requiring policyholders to pay the full, true rate commensurate with their particular risk of flooding as determined by FEMA.
Who is affected?
All policies will see premiums rise, but most will incur only modest increases. However, policyholders who carry flood insurance on properties meeting the following criteria have the potential of seeing large rate increases:
1. Pre-FIRM properties (built before the original flood insurance rate maps became effective for the particular community)
2. Located in “Special Flood Hazard Areas” (properties located in flood zones where a mortgage company must require flood insurance – primarily zones A, V, and D)
3. Paying a subsidized rate because no Elevation Certificate has been submitted providing data about the property
How much can these policies increase?
•Policies for secondary residences and business policies written prior to 7/6/12 may see increases of 25% per year until they reach the full, true rate (for Flood purposes, a secondary residence is one not occupied at least 80% by the owner during the year)
•Policies purchased after 7/6/12 will lose the rate subsidy and pay the full, true rate at renewal.
•Policies purchased after 10/1/13 will pay the full, true rate for their risk immediately.
•Policies assigned from seller to buyer after 7/6/12 will lose any rate subsidy and pay the full, true rate at renewal.
•Policies that have lapsed since 7/6/12 will lose any rate subsidy and pay the full, true rate when reinstated.
•Policies for primary residences purchased prior to 7/6/12 should see increases in the 16 – 17% range each year until they reach the full, true rate.
Who is not affected?
Policies for properties built or substantially improved “after” the effective date of the original flood rate maps for the particular community.
How will I know if my policy will be affected?
The best advice is to contact your agent. If your policy will be affected, it would be wise to obtain an Elevation Certificate and provide it to your agent. The agent can determine what the true rate will be, and may be able to provide options for reducing the affect of any increase.
There is a possibility some parts of the new law may be postponed, but only time will tell. Stay tuned!
Ray Faubion, CIC, CPCU, ARM
Vice President, BB&T Insurance Services
4089 Tamiami Trail N, Suite A 203
Naples, FL 34103