Flooding is a nightmare for homeowners. A few inches of water can cause immense damage, and repair costs can be ghastly. Yet, insuring a home against such disasters is getting more difficult, due in part to new federal regulations related to flood insurance.
Under old National Flood Insurance Program regulations, certain houses could receive federal subsidies that lowered homeowners’ insurance premiums. Yet in recent years, the NFIP has struggled to come up with sufficient revenue to meet claims and costs. Between 2003 and 2012, NFIP insuranceclaim totals were an annual average of almost $4 billion.
“The NFIP never fully priced in the cost of very large disasters— they never really priced in a Katrina-sized event or a Sandy-sized event,” says Lloyd Dixon, director of the RAND Center for Catastrophic Risk Management and Compensation in Santa Monica, Calif. “So the possibility of that was never priced into the rates structure.”
The 2012 Biggert-Waters Flood Insurance Reform Act attempted to stabilize NFIP finances by phasing out federal subsidies for homeowners in high-risk flood zones. Increases began in October 2013, and for some buyers and sellers they are already causing concern.
According to a statement from Steve Brown, 2014 president of the National Association of Realtors, approximately 40,000 home sales were delayed or canceled because of the flood insurance changes. A 2013 RAND study found that homes in high-risk flood zones can see increases as high as 40 percent in their insurance premiums after being stripped of federal subsidies.
Concerns over the act were enough to cause the Senate to pass a bill in January delaying the insurance increases. There also were calls for the Federal Emergency Management Agency to complete an affordability study on the NFIP to determine the true impact of Biggert-Waters rules.
John Sebree, senior vice president of public policy for Florida Realtors stresses the importance of improving both the NFIP and the private home insurance market, but believes that the government approach to disasters needs to be revisited.
“Congress is so quick to provide post-disaster funding,” Sebree says. “Why don’t we start encouraging that pre-disaster?” © CTW Features