Written By Dolores Glass, ANFI, Communications Manager, Wright Flood
In 1968, Congress enacted The National Flood Insurance Program (NFIP) a federal program to share the risk of flooding, nationally, over a large pool of property owners, establish good flood plain management and help communities recover quickly after a flood event. Private insurance companies were not offering flood insurance due to challenges with risk assessment, insurance regulation and marketability.
Initially, to participate in the NFIP, a community agreed to enact flood mitigation building codes in high risk flood areas in exchange for the availability of flood insurance for all buildings in that community, regardless of risk. They established flood insurance rate maps (FIRM) to identify and evaluate risky areas and buildings and a rate structure to encourage participation to cover all buildings, regardless of their flood risk, in participating communities. As technology grew and the water drainage patterns of a community changed, the flood maps were revised to maintain an accurate picture of the changing flood risk of the properties.
The resultant NFIP flood insurance premium rate structure evolved to include, among other criteria:
Fast forward to 2012, with more than 21,000 participating communities, lending laws requiring flood insurance for high risk properties and the NFIP gladly re-authorized to continue until Sept. of 2014. In addition, we see flood maps revised to reflect changing land use and updated mapping technology, flood premiums kept artificially below market value through an annual premium cap, a $20 billion dollar debt related to claims paid for Hurricane Katrina and Superstorm Sandy and a “subsidized” rate structure that prevents the NFIP from generating adequate premium to cover future claims. Then, on July 6, 2012 Congress passed the Biggert Waters Flood Reform Act.
As of October 1, 2013, the NFIP had begun to implement the new law with a reduction of premium subsidies including the following changes related to high risk (A or V zone properties) built before their communities joined the NFIP or 12/31/1974 (pre-FIRM):
In the future, additional subsidies will be phased out including those policies grandfathered after map change, or those granted extended preferred risk rates due to map change. Also the BW12 Flood Reforms included plans to establish installment payments, raise lender fines for not covering high risk properties and about a dozen flood risk studies. However, no implementation plan has yet been established for those sections.
It is still possible that Congress may amend parts of the BW12 Flood Reform Act and we are hopeful that provisions that would make these changes more affordable could be enacted. But, pending an Act of Congress, the meaningful reform of the NFIP is underway.