In July 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 which calls on the Federal Emergency Management Agency (FEMA), and other agencies, to make a number of changes to the way the National Flood Insurance Program (NFIP) is run. The Biggert-Waters Flood Insurance Reform Act will eliminate the grandfathering of properties that were allowed to use old flood-risk data, and will end subsidies for certain types of properties.
Proponents say the increases will help bring the program out of debt and toward actuarial soundness. Opponents argue that the changes will disproportionately affect policyholders in high-risk areas, like the Gulf Coast, and could go so far as to render certain properties valueless. Many additional homes have been placed in the high-risk flood zone for the first time, and if the owners have mortgages, they will be required to buy flood insurance.
Base flood elevation is the level at which FEMA considers the annual chance of flooding to be 1 percent or higher. The agency calls that area the Special Flood Hazard Area, or high-risk zone. Insurance premiums take into account the elevation of the home in relation to the base flood elevation, so each case is different. Homeowners need an elevation certificate from a surveyor or engineer to establish their elevation.
Under the 2012 law, formerly subsidized premiums for about 5 percent of policyholders in the National Flood Insurance Program — those for non-primary residences, businesses, and properties that have sustained severe, repetitive losses — will rise immediately by 25 percent a year until their premiums cover the actual risk. Not all subsidies are being eliminated, but if a property is sold, or the policy lapses, that property’s subsidy will end.
Most other policies will carry new assessments on their premiums, initially set at 5 percent. The law also raises premiums by phasing out a grandfathering system under which some property owners were allowed to use old flood-risk data.
Insurance Commissioner Jim Donelon said it best…”Politicians just don’t do insurance well.”