Changes to the National Flood Insurance Program has meant that many homeowners who live on the coast or in river valleys are seeing their insurance premiums soar.
Early on in October part of a new law came into effect. The law is called the Biggert-Waters Insurance Reform Act of 2012, and according to the article in CNN Money it will phase out flood insurance subsidies, affecting hundreds of thousands of older properties. In addition flood zone maps have been revised by the government and the level of flood risk for certain areas have been reassessed. The outcome has meant that millions of homeowners will need to pay higher premiums on existing policies, or need to purchase flood insurance for the first time.
Some homeowners are facing bills of thousands of dollars, and yearly premiums can reach $10,000 even for homes that were previously not considered to be in a flood zone. The original flood zone maps were drawn some 27 years ago, and experts think that some of the shocks over insurance rate increases could have been avoided had they been updated more regularly. Before this time the maps used to be redrawn approximately every three years, and if this had continued then the insurance premiums would have increased more gradually. The changes to the National Flood Insurance Program are meant to help increase its finances, as the program has ended up approximately $30 billion in debt due to the effects of massive storms such as Hurricane Katrina and Sandy.
The revision of the flood maps has left some homeowners in a quandary. They are faced with paying huge insurance premiums, while some have the choice of paying off their mortgage and doing away with flood insurance completely, in the hope that a storm won’t affect their home in the future. Another solution would be to raise the affected property to lower the premiums, but this could be an extremely expensive undertaking.
Not surprisingly the increase in premiums is affecting home sales. Potential buyers in coastal communities often choose to walk away from a property once they find out how much flood insurance will cost them each year. As yet, there are no firm figures as to how the premiums have affected property sales as the information is all anecdotal. However one real estate agent takes the view that every time flood insurances increase by $5,000, the property owner will lose $100,000 in the property’s value.