Flood Insurance Changes
In 2012, Congress passed a new law called the Biggert Waters Flood Insurance Reform Act of 2012, which marked a drastic change in FEMA policy, particularly as it relates to older homes. Changes were made in 2014 to repeal most of the controversial elements of Biggert Waters.
In October of 2013, a change to the National Flood
Insurance Program (NFIP) went into effect. Under
a new law, commonly referred to as the Biggert-Waters Act of 2012 (BW12), the
National Flood Insurance Program ended two long standing clauses that allowed
owners of older homes that predated current flood maps to receive reasonable
flood insurance rates. These
homes fell into two categories called “Pre-FIRM” and “Grandfathered”.
In order to understand what these terms mean, and how FEMA policy has
changed, you have to know a little about how the NFIP operates.
Most jurisdictions where flooding is possible have adopted
“Flood Insurance Rate Maps” (FIRMs).
A FIRM will generally outline the areas believed to be at
high risk of flooding, and often will specify the elevation (above sea level or
“datum”) that FEMA expects flood waters to reach during a major flooding
event. This flood water elevation is
called the “Base Flood Elevation” (BFE).
These maps have become the basis for how flood insurance risk is
determined across the country.
Modern building code requires -- or strongly suggests --
that the lowest living floor of new homes must be built at or above the BFE.
In addition, the NFIP enacted design regulations on other elements of the
home, such as crawl spaces, garages, and non-living area “enclosures”.
Local regulations may have further increased the federal regulations.
Some communities require that new homes be built with a bottom floor
elevation of one foot, or more, above base flood elevation.
Building significantly above BFE may qualify the owner for an insurance
discount. However, since the
adoption of the community’s first FIRM map, any new home that is built with a
living floor below BFE, or out of compliance with other NFIP building
regulations, would generally be required to pay much higher flood insurance
“Pre-FIRM” means the residence was constructed before
the community adopted its first Flood Insurance Rate Map (FIRM).
For example, if your community first adopted its FIRM on Sept. 1, 1978,
then all structures built prior to that date would be considered “Pre-FIRM”.
Generally, a residence could keep its Pre-FIRM status, as long as the
owner did not expand or improve the structure in a way that caused a significant
increase in the building’s value. Since
these “Pre-FIRM” homes were built prior to the adoption of FIRMs, they were
not expected to meet minimum elevation requirements.
Owners of these homes who required flood insurance could seek a
“Pre-FIRM” rate. The Pre-FIRM
rate is often a little higher than a standard rate for homes built in
compliance, but not as high as an out of compliance rate.
Over the past decades, new flood data, new topographic mapping data, and computer modeling has allowed for a better understanding of flood risk. In addition, newly constructed canals, dams, drainage systems, roadways, and neighborhoods can alter flood water movement. FEMA has periodically updated the Flood Insurance Rate Maps, including changing the boundaries of flood risk areas, flood zone designation, and base flood elevations. This brought about a new problem where some homes that were built in accordance with the previous set of Flood Insurance Rate Maps were no longer considered in compliance with the new set of maps. The solution was “The Grandfather Clause”, which allowed owners the option of having their insurance rated on the map that was effective at the time of the home’s construction, the most current map, or any map revision in between. If a home owner could prove their home was built in compliance with a previous flood map, they could receive a flood insurance rating based on the previous flood map.
Biggert-Waters Flood Insurance Reform Act of 2012
The Biggert-Waters Act of 2012 is a law that will
eventually eliminate all “Pre-FIRM” and “Grandfathered” policies.
Some owners will be allowed to keep their current level of savings, some
owners will have their savings reduced and phased out over time, and others will
lose all savings at their next renewal date.
As the law currently stands, anyone who owns and lives in a home
that currently benefits from Pre-FIRM status will typically be allowed to keep their
Pre-FIRM rate, conditionally. Allowing
the policy to lapse, converting the house to a rental, moving out of the house
such that it is no longer a primary residence, the home sustaining major flood
damage, or altering the recorded title,
may trigger an immediate loss of Pre-FIRM status and could result in much higher
flood insurance rates. In addition,
if the house is sold, new buyers would not be eligible for Pre-FIRM rates.
Critics of this law believe it will make homes that are seriously
affected by Biggert-Waters unmarketable.
The Grandfather Clause will be phased out differently.
In general, home owners that benefited from the Grandfather Clause will
not be allowed to keep their lower rates and will see their insurance rates rise
by 20% per year until the policy is priced at full cost.
If the home is sold, a new buyer would be quoted at full cost.
Business properties, rental properties, and second homes will also have no option to keep the lower rates, and will see immediate or yearly increases until their policy is rated at full cost. The loss of the Grandfather Clause has added a degree of uncertainty to property ownership. As the flood maps change in the future, your rates may change. Homes that are considered in compliance today may be out of compliance tomorrow, as flood zones are expanded and base flood elevations are increased.
On Jan. 17 2014, a new Federal budget deal was passed that delayed implementation of some Biggert-Waters rate hikes. As part of the budget deal, section 4015(h) of Biggert-Waters, which eliminates the "Grandfather Clause" and mandates a 20% yearly increase in rates, was delayed until the budget deal expires, which is approximately September or October of 2014. This should allow owners to renew or purchase policies at pre-Biggert-Waters prices, for at least a few more months.
This delay does not appear to help those who are affected by the elimination of Pre-FIRM rates, however.
As it currently stands, Congress has many other bills that are awaiting consideration that would further delay and/or change Biggert-Waters, or require an "affordability study" before rate hikes can resume, although there is no indication as to whether or not any of these bills have a chance of passing.
Homeowner Flood Insurance Affordability Act of 2014
In March of 2014, additional changes to the law were enacted through Congress. This time, most of the harmful elements of Biggert-Waters were repealed or further delayed. This brought some relief to homeowners. According to FEMA, the new law will slow or end mandatory rate increases, repeal some future rate increases, repeal some past rate increases, and provide refunds for homeowners who have already paid rate increases. In addition, most of the Grandfathering and Pre-FIRM policies were restored.
These changes, however, for the most part only apply to primary residences. Business properties, vacation homes, rental properties, and the like were excluded from this repeal, and could still be subject to rate hikes and loss of Pre-FIRM and Grandfathering status. In addition, properties that suffer repetitive losses may also lose their grandfathered rates.
The law also set into motion an affordability study, which may be used as a guideline when it comes to future rate increases and changes in FEMA policy or the law.
When a home loses its PreFIRM status, the rates will most likely rise. The amount will vary based on several key factors. The greatest factor in determining how much a new policy will cost is the elevation of the lowest living floor of the home, and how much above or below the base flood elevation the floor is. For example, if the FIRM designates your property to have a base flood elevation of 12’ above datum, and your floor elevation is 10.6’ above datum, the house would be viewed as 1.4’ too low, and most likely receive a higher flood insurance rate. The increase can vary from a few hundred dollars, to tens of thousands of dollars, depending on the elevation difference and the value of the home. It should also be noted that in some cases, if the floor elevation is determined to be above base flood elevation, the owner could receive a discounted insurance rate.
Another big factor in determining rates is the flood zone designation. The most common flood zone designations are “V”, “VE”, “A”, “AE”, “X”, and “X-Shaded”.
“X” is not considered to be a high risk area.
“X-Shaded” is considered to be at risk of a 500-year flood (a 0.2%
chance of flooding in any year). Lenders
typically do not require flood
insurance for homes built in "X" or "X-Shaded" Zones.
“A” and “AE” are considered to be at risk of a 100-year flood (a
1% chance of flooding in any year). Zones
“V” and “VE” are considered the most hazardous zones, where water
current and wave action is likely during a major flood event. Homes
in Zone "V" or "VE" are not only subject to higher base flood elevations, but the
homes must also meet FEMA's special building requirements, such as elevated on
pilings and/or break-away walls, to be eligible for the best flood rates.
It is very rare to find a “Pre-FIRM” home in a Zone V that meets the
modern elevation and building design requirements of the National Flood
Insurance program, since those specifications did not exist when the home was
built. Older homes in Zone V will
likely pay a higher premium for being too low, and a higher premium for
not meeting the NFIP building restrictions.
In some cases, rates have been quoted as high as $30,000 to $50,000 per
year when a home is severely out of compliance.
Other factors that negatively affect rates are insufficient flood vents, “finishing” a lower level garage or enclosure,
converting a lower level garage to living space, having more than 300 square
feet of enclosed garage in a Zone V, and having permanent mechanical equipment
(such as A/C or water heater) below base flood elevation.
In every case the cost changes will be different, so the
only way to know for sure is to take an elevation certificate to a knowledgeable
flood insurance agent. They have the
tools to give you the specifics for your situation.
People Who Bought Homes Between July 2012 & October 2013
Although the law was passed in 2012, it did not receive
much attention until mid to late 2013, when the news media began to take
notice. The law was not fully implemented until October 2013, but the way
the law was written requires flood insurance agents to remove PreFIRM or
Grandfathered status from anyone who bought after July 2012, even though they
were initially quoted the lower rates at the time they purchased the homes.
This has caused many people to purchase homes under the assumption that
flood insurance would be affordable for them, only to get much higher and
unaffordable renewal notices a year later.
Why Do I Need an Elevation Certificate?
Per Biggert-Waters, all new policies must be issued based on an elevation certificate. If you are up for renewal, you may be required to obtain a new elevation certificate. As part of an elevation certificate, a surveyor will measure and document key elevation points on the home. This includes measuring the elevation of the living floor, garage floor, mechanical equipment, and ground elevations around the home. A surveyor may also need to measure and inspect the flood vents and garage, crawlspace, or storage enclosures areas. These measurements will be compared to the known base flood elevation and are the basis of determining the flood insurance rate.
If you are thinking about purchasing a new home it is
highly advisable to check your flood zone, and if needed, obtain an elevation
certificate and discuss the results with a flood insurance agent.
Can I Do Anything To Lower My Rate?
In some cases, it is possible to lower your flood insurance
rate. The two most common avenues
for lowing flood insurance costs are to seek a Letter of Map Amendment or add
Flood Vents. In limited cases, an
owner can apply for a Letter of Map Amendment (LOMA).
Based on the results of an elevation certificate, if it is found that
your property is improperly designated as being in a flood zone, you can appeal
to FEMA to change your zone. Generally,
if an elevation certificate determines that your “lowest adjacent grade”
(the elevation of the lowest ground that touches the exterior of your home) is
above base flood elevation, you may qualify for a LOMA. A LOMA can reduce
the cost of flood insurance, or eliminate a lender's requirement to carry flood
In cases of homes that are built on a crawl space, above a
garage, or elevated on foundation walls, such that the lower enclosed area of the house is
all garage, storage or crawlspace, then a lack of adequate flood vents can cause
a steep increase in your rates. Flood
vents are permanent openings in your foundation walls that would allow flood
waters to pass in and out of your enclosed area, thereby equalizing the water
pressure on both sides of your foundation walls.
Houses that lack sufficient flood vents are considered to be at higher
risk of severe damage or collapse, and are therefore rated based on the lower
enclosure elevation, instead of the higher living floor.
The NFIP specifies that if part of a garage, crawlspace, or enclosure is
below base flood elevation, then a building must have one square inch of flood
venting per square foot of enclosed garage or crawlspace.
In some situations, adding flood vents can be a cost effective way
of reducing flood insurance
costs. Be sure to consult a
knowledgeable contractor for vent installation because additional requirements
In some cases, making significant and expensive structural
changes to the home may be the only way to reduce very high rates.
High rates may result from instances where the owner has converted a
lower enclosure or garage into living space, which usually violates FEMA’s
policy of banning living area below the base flood elevation, and requires
sealing off the original flood vents. In
these cases, restoring the home back to its original design, and reopening the
flood vents, may be the only way
to reduce rates. Also, if your house
is located in the highest risk zones, such as Zone V or VE, having more than 300
sq. ft. of garage or enclosure, or solid “non-breakaway” walls below base
flood elevation can result in steep rate increases.
This is a situation where removing the lower enclosure walls, or reducing
the area of the lower enclosure, may be the only way to cut insurance costs.
Finally, some owners have had to
"lift" or "elevate" their home's foundation, which is the
most costly option. This requires jacking up the home's foundation and
building new support columns under the home. There are federal programs that may provide a grant to have your
house “lifted” to decrease flood risk, however, these
grants are based on need and normally only apply to homes that already have
suffered severe damage.
An owner may also seek to obtain flood insurance outside of the National Flood Insurance Program. Lloyds of London, for example, is known for writing policies in Florida, and their rates often come in lower than the new NFIP rates for non-compliant homes. Privately written policies may be subject to mortgage holder approval.