The Latest on Flood Insurance – Simplified

It’s good news for flood insurance rates. The Senate passed the Flood Insurance Bill and President Obama plans to sign it.

Before Biggert-Waters

1. The annual flood insurance rate increase was capped at 10 percent
2. The home improvement threshold was set at 50 percent of a home’s value.  This refers to an increase in the flood insurance rate based on the percentage of renovation or remodeling of a home.

Biggert-Waters Flood Insurance Reform Act of 2012

1. As a result of the Act, the cost of flood insurance immediately rose to its actuarial rate at the time of a home sale, and the buyer could be required to pay many thousands more per year than the seller.
2. The annual flood insurance rate increase cap rose to 20 percent.
3. Higher flood insurance rates could be assessed if home improvements were equal to 30 percent of a home’s value.

Now

1. The just-passed bill maintains flood insurance price continuity and the purchaser is treated the same as the current property owner.
2. The bill no longer requires the cost of flood insurance to re-adjust upon the sale of a home in an area where the Federal Emergency Management Agency (FEMA) subsidizes policies.
3. Grandfathering is reinstated and stays with the property and not the policy. This protects properties from rate hikes resulting from new flood map data. It pertains to properties built after the flood insurance rate map (FIRM) as long as they were built to code at the time of construction.
4. The annual rate increase is capped at 18%: FEMA cannot raise flood insurance rates within a single property class beyond 15 percent per year. And it cannot raise a single homeowner’s rate more than 18 percent per year.
5. For properties build before FIRM, the annual rate increase is capped by home value.  The bill requires a 5 percent minimum annual increase but FEMA must try to minimize the charge to 1 percent of a properties flood coverage.  Example:  A home is covered for $300,000 in flood damage.  The yearly increase may be no higher that $3,000.
6. Refunds:  Policyholders who purchased pre-FIRM homes should receive a refund for the difference in higher flood insurance rates charged prior to this bill being signed.
7. The home improvement threshold will return to 50 percent of a home’s value.

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I am a luxury residential specialist in Pinecrest, Coral Gables and Coconut Grove.  If you would like to schedule a buyer, seller or investor consultation or if you would like a complementary market analysis of your home, kindly give me a call at 305-898-1852 or send me a note at Wellins.D@ewm.com.