All Wet – New Information on the National Flood Insurance Program

After a historically dry May that found some communities calling for watering bans in the day, you may be questioning why now for raising this issue of Flood Insurance. Two main reasons come to mind. While flooding may conjure up images of Nor Easters on our coastal waters, the reality is we are subject to flooding (and insurance) anywhere in the state. With June 1 marking the start of Hurricane Season we only have to think back to a few short years ago with our neighbors to the south and west were slammed with Super Storm Sandy and Hurricane Irene. Secondly, if you do own a commercial property within the flood plain and have insurance, you may have recently received a rate hike.

If you have insurance on your property, it is likely that you do not have coverage in the event of a flood. However if you are in a flood plain as designated by the Federal Emergency Management Agency (FEMA) and you have a mortgage on your property, there is a better than even chance that you have a policy from the National Flood Insurance Program (NFIP), which is back stopped by our federal government.

In years past there was debate by Congress if the federal government should be in the business of supporting these premiums. In 2012 the Biggert-Waters Flood Insurance Reform Act created a five year plan, with the eventual goal of reducing the subsidies to the insured in flood properties. In short, have the whole NFIP be solvent. This lasted for a couple of years until the Spring of 2014 when Congress acted again, this time to slow the rate of the premium increase as the growth was causing harm to property values.

Now as of April 1, the new rates have been released for all properties in flood prone areas. Nationwide the average increase was 10% across all property types. Small increases in fees ($250 surcharge for commercial properties) are the easy pieces to discover. Determining your overall insurance premium liability is somewhat more complicated. Depending on the flood zone you are in and when the property was constructed go a long way to determining your overall liability. Overall the 2015 increases put a cap for all properties no higher than 18%, with many falling below that.

The NFIP is on track for another two years. And while the above premium hikes may sounds harsh, the alternative of no federal backstop would be far worse.  While property owners of flood risk assets have a working knowledge of these things already, all investors and users should take note. Flood maps are constantly moving. While we tend to think of just coastal impacts of flooding, our State’s lakes and rivers also change over time, as do federal definitions. 

Written by Chris Norwood, NAI Norwood Group