What is a flood? Floods are the most common natural disaster to occur in the U.S. A flood is a temporary condition where two or more acres of normally dry land or two or more properties are inundated by water. It's not just people who live on the beach who get flooded. Nearly 25% of all flood insurance claims come from moderate-to-low risk areas. Flooding can be caused by rain and storm surge from large events like a hurricane or from something we experience nearly every summer afternoon in Naples, heavy rains.
Flooding can happen anywhere, but certain areas are especially prone to serious flooding. To help communities understand their risk, flood maps have been created to show the location of high-risk, moderate-to-low risk and undetermined-risk areas.
Flood damage is not covered by your homeowners insurance policy.
National Flood Insurance Program (NFIP)- A typical homeowners insurance policy specifically excludes damage caused by flood. To provide property owners with a means to protect themselves, in 1968 Congress created the National Flood Insurance Program. FEMA offers flood insurance to homeowners, renters, and business owners if their community participates in the NFIP - Naples, Marco Island, Collier and Lee county all do.
To be eligible, a community must adopt and enforce floodplain management ordinances and minimum standards for new and substantially remodeled construction that meet or exceed FEMA requirements to reduce the risk of flooding. Owners of existing homes and businesses were not required to rebuild to the higher standards, and in fact many received subsidized rates that did not reflect their true risk of flooding.
The NFIP is administered by FEMA, the Federal Emergency Management Agency, which works with private insurance companies to offer flood insurance to property owners and renters. Flood insurance can be purchased through property and casualty insurance agents like us. The rates depend on many factors including the age, type of construction of the home and most importantly the elevation of the lowest floor of the home.
Flood insurance rates are set by FEMA and are the same from company to company and agent to agent. If you have two quotes with two different rates one of the quotes is wrong or the coverage being quoted is different.
Congress has mandated that any home with a mortgage backed by a federal agency, like Fanny Mae and Freddy Mac, must carry flood insurance if the home is located in a high-risk area (zones A, AE, AH or VE). Homes and business in moderate-to-low risk areas (zones B, C, or X) arenot requiredto have flood insurance, but they should. 25% of all flood claims are paid to properties not in a "high-risk" flood zone. A lender can require a mortgagee to purchase flood insurance even if it is not federally required. Bottom line,if you live in Florida, you live in a flood zone and you should have flood insurance.
Flood Maps- the Federal Emergency Management Association (FEMA) uses statistical data to create flood hazard maps that outline a communities different flood risk areas, called zones. In 2003 Congress mandated that FEMA update their flood maps to a digital mapping system, DFIRMS (Digital Flood Insurance MapS), which are more accurate and easier to maintain.
DFIRMS provide a depiction of flood hazards for each community and for the properties located within it. The flood maps for Collier County were updated to DIRMS that were effective as of May 16, 2012. After the map changes, most of Collier County is now considered to be in one of the high-risk flood zones. If your flood zone changed from "moderate-to-low risk" to "high-risk" and you have a federally insured mortgage, you probably were or will be required by your lender to purchase flood insurance.
Flood Damage/Insurance- Flood insurance policies cover physical damage to your property and possessions caused by a flood. Just a few inches of water can cause tens of thousands of dollars in damage. The average residential flood claim paid by FEMA in Florida in 2013 was $22,595 - without a single hurricane making landfall. Flood insurance is a cost effective way to protect your property from a devastating financial loss. Cost vary depending on how much insurance is purchased, what it covers, and the property's flood zone.
Preferred Risk Policy- Most homeowners in moderate-to-low risk areas are eligible for coverage at a preferred rate. Homes and businesses may qualify for the low-cost Preferred Risk Policy with premiums starting at $129 for a home ($20,000 for building/$8,000 for contents) to $643 for a commercial building and its contents ($50,000 building/$50,000 contents).
Even if it is not required by your lender or if you have no mortgage you are still susceptible to flood and you should purchase flood insurance. Over 25% of NFIP claims and 1/3 of disaster assistance for flooding is paid to property owners in moderate-to-low risk areas (zones starting with B, C, or X).
High-Risk Policy- If your property is located in a high-risk area, zones starting with "A" or "V", and you have a federally insured mortgage you will be required to purchase flood insurance. There is at least a 1 in 4 chance of flooding during a 30-year mortgage for properties in high risk areas. A standard rated policy offers separate building and contents coverage. Standard rated flood insurance premiums are calculated based on factors like year of construction, building occupancy, number of floors, location of contents, flood zone, your lowest floor elevation, and the deductible you choose.
30 Day Waiting Period- Typically there is a 30 day waiting period from the date of purchase before your flood policy goes into effect with a few exceptions. If you are taking out, increasing, or extending your loan; you are purchasing flood insurance with the 13 month period following a map revision; your lender determines that flood insurance is required where it hadn't been required before; or an additional amount of insurance is being purchased at renewal then the 30 day waiting period will be waived.
Elevation Certificates- An elevation certificate is a form signed by a licensed engineer or surveyor that verifies the elevation of the lowest floor of your property relative to the natural ground. The Base Flood Elevation (BFE) is the elevation where there is a 1% or greater annual chance of flooding. Generally, the higher your lowest floor elevation is above the base flood elevation, the lower your flood risk, so your flood insurance will cost less. You will need to have an elevation certificate in order to get a flood insurance quote. The NFIP requires communities to maintain a record of elevation certificates to document their compliance with the communities floodplain management plan.
Biggert-Waters Reform Act of 2012 (BW12)- Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 on July 6, 2012. BW12 extended the authorization for the National Flood Insurance Program for five years, while requiring significant program reforms. The law requires changes to all major components of the program to make the NFIP more financially sound by ensuring that flood insurance rates more accurately reflect the real risk of flooding.
At the time the BW12 was passed, in May 2012, the NFIP was over $17 billion in debt with little hope of paying it back. The program is more than $23 billion in debt today. The NFIP needs more revenue and the way to get it is to raise flood insurance rates and/or increase the number of people who are required to purchase flood insurance.
One reason for the NFIP debt is the fact that over 20% of NFIP policies premiums, approximately 1 million policies, are being heavily subsidized. Typically these subsidized properties are homes built in high-risk flood areas before their communities adopted the NFIP flood insurance rate map (FIRM). Called pre-Firm, these properties have been insured using highly "subsidized" rates for many years. Typically they pay only about 40 to 45% of the true flood risk rate for their property. A pre-FIRM building in Collier County and Marco Island was built before 9-4-79. For the City of Naples the pre-FIRM date is 7-2-71.
The biggest impact of BW12 comes with the elimination of "subsidized" rates for business properties, non-primary residences (second homes), and buildings with multiple flood claims that exceed the market value of the property. About 20% of all NFIP policies pay subsidized rates. Only a portion of those policies will have their rates increased. Most flood policies, with subsidized premiums or not, will see a new charge to create a "Reserve Fund" for future claims. Subsidies are not being phased out for existing policies covering primary residences.
BW12 requires that pre-FIRM properties get an elevation certificate so that their rate can be accurately calculated based on how high their lowest floor is elevated relative to the floodplain. Properties that are built in high-risk flood zones, below the base flood elevation, are the most heavily subsidized and their premiums will go up the most - because they are the most likely to flood! If you have driven near the pier in old Naples I'm sure you have seen a newer highly elevated home next to an older lower built home. The new home has been built to the new flood elevation code and their flood insurance premium will and should be lower than the non-elevated home next door.
Under BW12 a "primary residence" is defined as a property occupied by the insured or the insured's spouse for 50% or more of the 365 days following the policy effective date. If the property is not your "primary residence" it will be considered a "second home" and the premium subsidies will be phased out. Subsidies will also be phased out for "severe repetitive loss properties". A severe repetitive loss property is any property that has incurred multiple flood damage claims and more has been paid in claim payments than the property is worth.
What the BW12 did not address is the effects of the increased premium changes on policyholders and the affordability of flood insurance policies themselves.
The Homeowner Flood Insurance Affordability Act of 2014 (HFIAA)- became law on March 21, 2014. HFIAA repeals and modifies certain provisions of BW12, especially as they relate to affordability. It delays most of the increases in flood insurance premiums that were mandated in BW12 and requires a gradual increasing of the rates on properties now receiving artificially low or subsidized rates. With limited exceptions, rates can increase no more than 18% annually for an individual policyholder, as opposed to the immediate increases to full-risk rates mandated by BW12. It also directs FEMA to come up with a plan to lower premiums and to reassess their maps of areas likely to flood.
HFIAA will reinstate pre-FIRM rates and refund excess premiums collected in certain instances where full-risk rates were charged. FEMA is working with participating insurance companies and hopes to start the refund process by the end of 2014. New policies for properties with a lapse in coverage will be issued at full-risk rate soif you have a current flood insurance policy - don't cancel it or let it lapse. You may end up paying higher rates!
HFIAA includes a new surcharge which will be added to all policies until all pre-FIRM subsidies are eliminated. The surcharge for a primary residence is $25. For all other policies the surcharge will be $250. It is anticipated the new surcharges will begin in 2015. The HFIAA requires that FEMA inform policyholders of thefull true costof their insurance including subsidies. The Act also allows uninhabited structures not attached to the primary structure, like a shed, to be excluded from the flood policy.
FEMA is still working to implement the new law and you can be certain more changes are coming.
Summary- No private insurance company is large enough offer flood coverage at affordable rates, so flood is excluded on all homeowners insurance policies. The NFIP was created by Congress in 1968 to provide flood coverage to communities who enact ordinances that help reduce the risk of flooding. Properties built before the community joined the NFIP were given a "subsidized" rate 40 - 45% lower than their true rate. They also were not required to rebuild to the new building codes.
NFIP is going broke, it is over $23 million in debt with no way to pay it back other than by increasing rates and requiring more people to purchase flood insurance. When Collier County moved to the new DFIRM maps thousands of new properties were now considered to be in the high-risk flood zones and their owners were required to buy flood insurance.
In 2012 the Biggert-Waters Reform Act was passed which removed "subsidized" rates and substantially raised flood insurance premiums. Higher premiums made flood insurance unaffordable for some property owners and hurt the real estate market.
The Homeowner Flood Insurance Affordability Act (HFIAA) was passed in 2014 to slow the rate of increase in flood insurance premiums brought on by BW12 and to give FEMA time to come up with a more affordable way to fund the NFIP.
Hopefully this helps you to understand the changes inthe flood program which have taken place over the least few years. I have tried to make this page as accurate as possible, but the flood program is constantly changing. If you would like to discuss your flood insurance questions, please give us a call. For more information you can visit FEMA, and NFIP.