The Homeowner Flood Insurance Affordability Act (HFIAA) of 2014 went into effect April 1, 2015. It revises federal insurance premiums, as the government is slowly phasing out subsidized flood insurance for those who have houses in flood zones. HFIAA also introduces a new mandatory surcharge on all new and renewed policies – $25 for primary residences and $250 for all other policies.
Read more from FEMA about the changes to flood insurance premiums
Read more from NAR about the changes to flood insurance
Let's back up a little bit and talk about flood insurance in general. Did you know that your homeowner’s insurance policy doesn’t cover flood damage? That’s right. Most homeowners insurance policies will cover damage caused by such perils as fire, windstorms, hail, lightning, theft or vandalism. However, flood and earthquake damage usually must be covered under separate policies. Most flood insurance policies are part of the National Flood Insurance Program (NFIP) and as such, their premiums are subsidized by the federal government so the homeowner pays less than they would pay if the premium represented the full risk on the property. But, as one might expect, the cost of the program soon became a problem. That in turn triggered passage of another Act—the Biggert-Waters Flood Insurance Reform Act of 2012—intended to allow premiums in covered areas to rise to offset their real costs. The new HFIAA passed in 2014, partially reverses that yet again, because policy-makers feared the effect on the housing market. The new act delays some of the price increases and allows homeowners who sell their homes to pass the lower premiums on to the new homeowners.
As a result of the HFIAA, purchasers of property should not rely on previous premiums paid for flood insurance on a property as an indication of the premiums that will apply after completion of the purchase. In considering purchase of this property buyers should consult with one or more carriers of flood insurance for a better understanding of flood insurance coverage, current and anticipated future flood insurance premiums, whether the prior owner’s policy may be assumed by a subsequent purchaser of the property, and other matters related to the purchase of flood insurance for the property.
As compromises go, the HFIAA legislation isn't bad. Premiums do rise and FEMA mapping will be more closely scrutinized. But, subsidies do remain. Overall, subsidies distort the true value of the product or service, injuring the customer more than benefitting. Neither auto nor homeowners nor long term care nor life insurances are subsidized. So why flood?. Ultimately, it is my hope that a private sector alternative will develop and reflect a truly competitive industry.
If you are thinking of buying a home in the Outer Banks of NC this summer, flood insurance is only one of the many details you’ll want to consider. Call me today and we can begin by putting together a list of your search criteria.
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