Rising Flood Insurance Premiums’ Impact on Massachusetts

posted Jan 7, 2014, 1:55 PM by Helen Partlow   [ updated Jan 7, 2014, 2:00 PM ]

Most homeowner’s insurance policies do not include flood insurance in its coverage.  Before flood insurance, property owners who experienced devastation from floods were often left to their own devices when it came to rebuilding.  In 1968, Congress created the National Flood Insurance Program (NFIP) to help aid those people who have experienced hardship from floods and bridge the gap.

Due to huge flooding devastations from natural disasters such as Hurricane Katrina in 2005 and Hurricane Sandy in 2012, Federal Emergency Management Agency (FEMA) has been hit with a $24 billion deficit after giving payouts to those that were affected.

In response to this, The Biggert Waters Flood Insurance Reform Act of 2012 requires FEMA and other agencies to make changes as to how NFIP runs.  The main changes that this Act has are: (1) a raise of flood insurance rates to reflect a more accurate flood risk; (2) financially stabilized FEMA; and (3)  and change how Flood Insurance Rate Map (FIRM) updates impact current and future policyholders. 

This means that most policies will have a raise in their premiums and any discounts in rates are less likely to happen.  Rate changes can be triggered by buying a property that requires flood insurance, buying a new policy, or allowing a policy to lapse.  Flood insurance premiums that were once a few hundred dollars a year can spike to several hundred dollars per month to even thousands of dollars per a month.

Beginning this year in 2014, any previously grandfathered rates will be phased out when local communities adopt new Flood Insurance Rate Maps (FIRM).  The rates are expected to rise gradually, increasing 20% per year for the next 5 years.  There have been no estimates as to how many policies this may affect, but the impact could be widespread.  The risk zones and flood elevations shown on the FIRMs within “special flood hazard areas” are what is used to help determine what the flood insurance rate should be. 

The maps and data in Massachusetts are in many cases 20 years old and are mostly not available digitally.  In Massachusetts, the federal program issues approximately 59,000 policies with an average premium of $1,200.  It is unclear as to how many more properties would be labeled as being in flood zone in the future once these maps have been updated.  FEMA is using lasers to map towns and is taking into account different factors such as wave impacts on land when they as they are updating these maps. 

As a result of these techniques, properties that are low and flat are being shown as below the base flood elevation level, which triggers the requirement to obtain flood insurance in order to obtain a mortgage.  These extra insurance premiums per month can be a very big hurdle for many buyers to overcome.  A purchaser who otherwise would have been able to financially afford the property and even qualify for an appropriate mortgage may no longer be able to financially purchase a property with these high flood insurance premiums. 

Another area of concern for purchasers could happen when purchasing a house that is currently not in a flood zone, but later is placed in a flood zone once the FIRM maps have been updated.  Realtors must be wary when making any representations to potential buyers as this may become an issue for the purchaser down the road if the property is later placed in a flood zone.

To see when a new flood map will be available in your community, please visit Floodsmart.gov

Source: FEMA 

Source: MA Realtor