The Flood Insurance debacle

February 15, 2015

Unfortunately flooding occurs on a regular basis and where it floods isn’t always predictable. All Standard insurance policies exclude Flood Insurance this includes your Homeowners insurance policy and your commercial policies. Due to the lack of availability and the frequency of flood events The National Flood Insurance program (NFIP) was created. The NFIP is part of the Federal Emergency Management Agency (FEMA) and the program, while well intended when created, has been a large black hole in which tax dollars are poured. A couple of years ago congress attempted to stop the tax subsidization of flood insurance by passing the Biggert- Waters Flood Insurance Reform Act of 2012. The goal of this act was to make the NFIP program stand on its own without tax subsidies. For more information on this act go to (

The Biggert- Waters Flood Insurance Reform Act had a goal of taking away all tax subsidies gradually over a 5 year period. However, the gradual reduction of rates was to occur only for existing policy holders and not for new policies. The result was that new policy holders went immediately to unsubsidized rates. On paper this seemed like a reasonable approach, however, the result was plummeting real estate values for properties that were located in a “High Hazard” area. Immediately people couldn’t sell their homes because no one could afford to pay for flood insurance on the property at the new rates since the new homeowner would have to pay for an un subsidized flood insurance policy. To make matters worse FEMA was cracking down on the banking system and fining them for any federally backed mortgage loans on properties located in High Hazard areas that didn’t have proper flood insurance in place. (There is a federal law that says if the property owner has a loan on real estate that used federally back money then that property owner must carry flood insurance if that property is located within a “high hazard flood area”).

The result was outrage by consumers who owned properties in the “High Hazard Flood” zones. Congress heard the cry of the people and the “Homeowner Flood Insurance Affordability Act of 2014” ( was passed to help relieve some of the initial premium increases and to slow down annual rate increases. A few of the items address by this most recent act are listed here.

  • An Elevation Certificate is no longer required for “high hazard flood area” flood policies.
  • Grandfathering of rates and zones for most policies.
  • Remapping of high hazard flood zones to be done over the next 3 years.

Elevation Certificates – Not requiring elevation certificates is a double edge sword, yes the person will not have to pay the $1000 to $1500 for an elevation certificate but the downside to that is the NFIP uses a benchmark rate rather than the actual elevation of the structure. This benchmark rate is much closer to the highest cost rather than in the middle of the High Risk area resulting in much more premium being paid in the long run.

Grandfathering of rates and zones – Generally this is a true benefit to the property owner in the short term since rates will not automatically jump to the higher rates.

Remapping of high hazard flood zones – In the majority of cases this is a bad thing for property owners in that the majority of the time this is an expansion of the High Hazard Flood Area and will result ultimately in higher rates for property owners that had structures that were not previously in the High Hazard area and after remapping end up being in the high hazard area.

While there has been some relief to the cost of flood insurance as a result of the Homeowner Flood Insurance Affordability Act of 2014 it is important to note that the ultimate goal for FEMA is to get the NFIP program to a point where tax subsidies are not needed. So that means that Flood Insurance rates will continue to go up and eventually the need for the NFIP will be greatly reduced as the private insurance industry will start to take over insuring the majority of flood insurance policies.

Even today I have companies that are starting to be more competitive than what is being offered by the NFIP. If you have any questions please feel free to give me a call at 717-537-1104.

Joe Hershey, CPCU, CIC