Flood Insurance Rates Will Increase

Flood insurance reform legislation was passed in 2012 to address deficits in the National Flood Insurance Program nearing $24 billion, but the initial solution made flood insurance unaffordable for many. The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) was passed to ease some of the pain created by the Biggert-Waters Flood Reform Act of 2012. The changes will be effective on April 1, 2015.

In addition to revised rates, surcharges will be applied to all policies to establish a reserve fund to cover costs when claims exceed annual premiums. A 10 percent surcharge will be applied to preferred risk policies and a 15 percent surcharge will apply to all other policies. HFIAA was designed to slow the elimination of rate subsidies but compensates for the loss of revenue by imposing surcharges on all policies until the subsidies are eliminated. A $25 surcharge will apply to primary single family and condominium units and a $250 surcharge will apply to all other policies. NFIP will require evidence that a residence is actually primary. One of the following must be submitted as proof: driver's license; auto registration; proof of auto insurance; voter's registration; documents showing where children attend school; or, a homestead tax credit. NFIP has prepared a letter of verification of primary residence status should none of the other options be available.

In most cases, rate increases are capped at 15 percent for each rating class. The surcharges and policy fees are not included in the cap which means a policyholder could see an increase of more than 18 percent.

There is a new $10,000 deductible option available for single family and two-to-four family dwellings. This option will result in up to a 40 percent discount from the base premium but is subject to acceptance by lenders when the property is subject to mandatory flood insurance purchase requirements.