We have talked extensively about flood insurance in our previous blogs, which include “What Insurance Do I Need If I Live in a High Risk Flood Zone in Connecticut” and “How to Check if Your House is in a Flood Zone in Connecticut”.
Now that you have an understanding of how flood insurance works, let’s talk about the changes in the policy that homeowners with subsidized rates are subjected to.
NFIP aims to cover the following two objectives when it comes to flood insurance:
(1) To provide access to primary flood insurance, thereby allowing for the transfer of some of the financial risk of property owners to the federal government
(2) To mitigate and reduce the nation’s comprehensive flood risk through the development and implementation of floodplain management standards
Changes in the Policy
The premiums will increase by 25% each year, until the policy holder is paying for the full risk of the property. This rate will depend on:
- Severe repetitive loss
- Non-primary residences
- Properties that are subject to increasing flood losses that exceed fair market value
- Non-residential buildings
This applies to all homeowners who have flood insurance. However, certain homeowners can keep their subsidized rates if the house was purchased before 6th July, 2012.
Homeowners who will be subject to new rate will have to look into Elevation Certificates (ECs). Once they know the full risk their property is under, the certificate can be bought. If the rate calculated using EC is lower than the subsidized rates, then the insurance policy will be adjusted accordingly. If the rates are higher, homeowners can keep the subsidized rates.
Residential – Subsidized Rate
Example: Your house was built in 1960. You bought a flood insurance policy in 1998. Since then, the house hasn’t been flooded or damaged due to a natural disaster.
You are probably wondering if your premium will change or not.
Since it is a residential property and it has never been damaged by a flood, your subsidized rate will remain in place. While you don’t need an EC but getting one will work in your favor. It will help you mitigate the risks. If you find out that the full-risk rate calculated is lower compared to the subsidized rate, then you can get the premium adjusted. One thing that you should keep in mind is that if you make delays in the premium payments, then your policy will lapse and you will lose your subsidized rate. The next policy you will get will have a significantly high premium.
Example: My shop was built in 1960. I bought flood insurance in 2003 and since then, I haven’t made a claim. Will I be subjected to the premium change?
The 25% increase in the premium rate is applied on all non-residential properties. Meaning – They will no longer pay the premium according to the subsidized rate. The increase will be applied every year, until the policy covers the full-risk of the property. You don’t need an EC to renew the policy.
Residential – New Rate
Example: We bought a house in July 2013 but the house was constructed in 1962. Our lender asked if we had flood insurance. Instead of purchasing a new policy, the previous owners transferred their flood insurance policy to us. Will we be subjected to the premium change?
Since the house was bought after 6th July, 2012, they will have to pay the new rates one the policy is renewed. Here, an EC is necessary so that the full risk to the property can be calculated.
The flood insurance rates as set by FEMA are “based on consideration of the risk involved and accepted actuarial principles”. Meaning: the premium rate is based on the risk a property faces depending on where the house is on the Flood Insurance Rate Map (FIRM). Certain properties pay less than the full risk, which include:
- Pre-FIRM: Properties built before 31st December, 1974
- Newly Mapped: Properties were mapped into a Special Flood Hazard Area (SFHA) after 1st April, 2015
- Grandfathered: Properties built in compliance with the FIRM
According to an article published in the NRDC, with the rise of floods and hurricanes, FIMA has not been able to provide assistance to homeowners who live in high risk flood zones.
The article “Changing the National Flood Insurance Program for a Changing Climate” from the Natural Resources Defense Council and the Sabin Center for Climate Change Law pointed the following changes that FEMA should make to the NFIP:
- Discount and Buyouts: Homeowners living in high floor zones should be given the option to move out from the area. The program should offer low premiums in exchange for the homeowners’ commitment that they agree to a future buyout when the house gets substantially damaged by the flood.
- Floodplain Development Requirements: FEMA should speed up the development of properties that are at risk of flood damage but adhere to floodplain development requirements
- Provide Detailed Information: Make information such as cost of policies, flood history, the government’s participation in the program, etc, available to the public so that homeowners can make an informed decision when planning to buy flood insurance. Moreover, this will also explain to them the importance of flood insurance.
- Provide More Resources: Help people with information regarding flood insurance so that communities can implement floodplain regulations set by the program itself.
The changes in the rate are now applicable on most residential policies and all commercial property owners. Before your policy lapses, better get an EC and find out if your flood insurance policy will be subjected to a rise in premium rate or not.
If you are looking for an experienced insurance agent who knows how to provide the perfect insurance policy based on a customer’s needs, then visit Pawson. The company provides all types of insurance policies for homes, personal properties, cars and businesses. To know more about their policies, contact them at 203-481-8898.
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