REALTORS® are reporting dramatically rising flood insurance premiums because of recent changes to the National Flood insurance Program. But while some home owners could see big increases in their costs, the changes are likely to be less dramatic for many — and some increases can be reduced by taking steps to mitigate flood risk, federal officials and private-sector experts said at the REALTORS® Conference & Expo.
Under reforms enacted last year, certain categories of property whose owners have been paying subsidized premiums will see those subsidies phased out, requiring owners to pay the full actuarial value of their insurance. The changes effect less than 20 percent of the 5.6 million owners whose properties have federal flood insurance, said Ed Connor, a deputy associate administrator for the Federal Emergency Management Agency.
Some phase-outs are structured to occur upon lapse or renewal of a policy or when the property changes hands. As a result, the premium a buyer would pay could be significantly higher than what the seller has been paying, and that's something buyers would have to understand.
Some of the most dramatic changes in premiums apply to properties that are in an area in which the flood map has been updated to show an increased flood risk (or wasn't considered a flood area before but now is), and the ground floor of the property is below what's called the base flood elevation. That's the level at which the property would fall below the water line in a flood.
Two properties across the street from one another in a flood zone could end up facing very different premiums if one has a base flood elevation that's above the water line and the other doesn't. "Every foot matters," said Roy Wright, another FEMA deputy associate administrator.
To identify the property's base flood elevation, the owner gets an elevation certificate filled out by a surveyor. The costs for that will vary depending on the area and how the property is situated, but expect it to cost several hundred dollars, said Wright.
If the certificate shows the house is below the flood elevation, it's worth it for the owner to consider taking some mitigation steps, which can lower the premium. These can be relatively simple, such as adding vents in certain places to help channel water in the event of a flood, or complex, such as raising the property or even moving it to higher ground. The owner can also ask for a higher deductible to reduce the rate.
If the community is participating in what's known as the federal community rating system (CRS) program, the owner can get a premium discount just by virtue of that, with the discount amount based on the intensiveness of the community's CRS program. Among the factors that go into a CRS program are whether the community helps owners elevate low-lying properties (typically using federal grants), provide outreach to consumers about flood hazards, and so on.
Kelli Walker, senior director of government affairs at the New Orleans Metropolitan Association of REALTORS®, urged REALTORS® in areas with flood risk to see if their community is participating in CRS, and, if it's not, to press them to do so. It's not uncommon for elected leaders even in flood-prone communities not to know about CRS, so it might just be a matter of letting them know about it. A little more than 1,200 communities are participating, just a fraction of the almost 22,000 communities that are in a flood area, she said.
Meanwhile, NAR is working with lawmakers in Congress to delay implementation of some of the subsidy phase-outs, including for the purchase of properties. Under NAR-backed legislation pending in both houses, the delay would last until FEMA completes a study it's required to give Congress on the impact the phase-out will have on housing affordability. The bill would also create an advocate to investigate flood mapping and other concerns, and institute a regulatory solution.