Recently our clients have started receiving notices from the National Flood Service telling them that their flood insurance will not be renewed. This all relates to the Flood Insurance Reform Act that was passed in 2012. If you live in a flood zone and have a flood insurance policy, you should pay close attention because this will affect your flood insurance rates.
Most flood insurance policies sold to people who live in active flood zones, flood zones which begin with “A” or “V”, are subsidized. This means that the rate that you are being charged does not equal the amount that the National Flood Service expects to pay out in claims. For this reason the National Flood Service has always run a fiscal deficit and has built up large amounts of debt to the Federal Government. This is all about to change.
Some policies will see a full increase to non-subsidized rates on their next renewal. The following conditions will cause that to happen:
- New policies written with an effective date on or after July 6, 2012
- Policies written as new business, or existing policies assigned to a new owner as a result of a new purchase on or after July 6, 2012
- Policies that have lapsed and been reinstated on or after October 4, 2012
If you fall into any of these categories, your agent will be required to replace your policy with a new one written at full, unsubsidized rates. If you do not already have one, you will be required to obtain an elevation certificate
The next group will feel an increase not quite as dramatic as the first category. If you own a secondary home located in a “V” Flood Zone, you will see rate increases of approximately 25% each year until it reaches the full non-subsidized rate. According to the flood service, a secondary home is defined as a home that is not lived in by the owner for at least 80% of the year.
The final category is a collection of everyone else who lives in an active flood zone. Their rates will increase an average of 10% each year until the full non-subsidized rate is reached. While this is not as dramatic as the first two categories, it will still mean higher insurance rates over time.
Keep in mind that these changes are for everyone who lives in an active flood zone. If you are unsure how you will be affected by these changes, call your agent and schedule a meeting to sit down and discuss your policy. You need to know if you will be affected so that you can plan for the new rates.