Changes are coming for the National Flood Insurance Program, and everyone with a flood insurance policy wonders what those changes will cost them. If you live in a flood zone that is low- to moderate risk, nothing changes for you. Itâ€™s a different tune for those in high-risk zones.
What prompted big changes for the nationâ€™s flood insurance program? By no means is this intended to make light of the subject, yet it has been raining like crazy all morning in Tampa Bay so a nursery rhyme comes to mind:
Itâ€™s raining, itâ€™s pouring
The old man is snoring.
He went to bed and bumped his head,
And he wouldnâ€™t get up in the morning.
The â€śold manâ€ť is the federal governmentâ€™s National Flood Insurance Program (NFIP), and he had been snoring for decades. Created in 1968, the program insures more than 5.5 million properties nationwide. In 2005, Hurricane Katrina caused a â€śbump on the headâ€ť to the tune of paying out $16.3 billion more in claims than the program collected in insurance premium. That was one rude awakening, then Superstorm Sandy brought another, bumping nearly half as hard with an additional $7.1 billion in NFIP payouts. The NFIP borrowed money from the U.S. Treasury (taxpayers) to pay these claims, and the interest payments on the debt are so large that little progress is being made to pay down the principal. And, more floods keep coming, namely the Colorado flooding which the National Weather Service described as â€śbiblical.â€ť
Obviously, being able to â€śget up in the morningâ€ť is essential to any insurance mechanism. The problem with government programs, such as the NFIP and Floridaâ€™s own Citizens Property Insurance, is that they borrow from future taxpayers to pay todayâ€™s risks. And, one day the bill comes due â€“ and for the NFIP that day is now.
Flood Reform Act launches Oct. 1
The Flood Reform Act of 2012 is intended to phase out subsidized rates for flood insurance. According to the NFIP, 80 percent of policyholders already pay the right rate that accurately reflects flood risk. For the 20 percent who donâ€™t, premiums will start to increase gradually at 25 percent a year until the rates reach what would be representative of a propertyâ€™s full risk.
Those who already pay their fair share for flood coverage (80 percent of policyholders) will find the reforms have no impact on them. Not true for the 20 percent facing the end of subsidized rates. Changes from the Reform Act were announced last summer, but not much attention was paid to the impact until the implementation date approached, which is October 1.
Resources for flood questions
Talk to your insurance professional to see if the changes affect you. There is also a Q&A from FEMA on the reform act and a timeline explaining who is affected and what will happen.
Florida has more flood insurance policies than any other state â€“ more than 2 million flood policies in force. We have more coastline, more rain, and lots of inland lakes and ponds. While those who are facing higher costs for flood insurance are learning more about the true cost of their flood risk, there is something for all Floridians to learn: Just because you are not required by your lender to have flood insurance doesnâ€™t mean you donâ€™t need it. Hundreds of people impacted by Katrina, Sandy, and now in Colorado, wished theyâ€™d heard that oft repeated flood message and took action on it.