BIGGERT-WATERS FLOOD INSURANCE REFORM ACT OF 2012

This ACT (BW12) was passed by the U. S. Congress in 2012. It requires the Federal Emergency Management Agency to raise the National Flood Insurance Program (NFIP) flood insurance premium rates to:

  • Reflect true/full flood risk.
  • Place the program on a sound financial footing. Currently FEMA is some $27-$30 million dollars in the red.
  • Change how Flood Insurance Rate Map (FIRM) updates impact policyholders.

The changes will mean premium rates for some – but not all- policyholders over time. It will eliminate some artificially low premium rates and discounts.

What can trigger a premium rate increase?

  • Buying a property. It should be noted that a buyer of an existing property that was previously insured under a subsidized or grandfathered policy is not permitted to insure the property at the old rate. A new policy is required with the new premium rate set by the full risk provision of the Biggert-Waters Act. If a buyer obtains a federally backed mortgage, the buyer will be required to obtain flood insurance policy as a requisite for obtaining the mortgage. It is assumed that in applying for a non-federally backed mortgage, all mortgage companies will require the buyer to purchase flood insurance.
  • Allowing a policy to lapse and then reinstating it.
  • Purchasing a new policy.

Who doesn’t have to buy flood insurance?

  • A property owner is not required to purchase flood insurance for property that is not mortgaged, i.e., owned outright.

When does the Biggert-Waters Act go into force?

  • Phase 1 began on January 01, 2013 and affected mostly property owners of subsidized or discounted policies on non-primary/secondary residences in a Special Flood Hazard Area (SFHA). Those policies will increase by 25% annually until their premium rates reflect true/full risk. Phase 1’s biggest impact affects primarily coastal communities/areas/counties or areas which can be inundated by storm surge. Some examples are Galveston, Texas City, League City, Freeport, West Columbia and many others. Property owners in coastal communities/area/counties will ultimately see their flood insurance premium rates increase to >$20,000 over the coming 4-5 years.
  • Phase 2 will begin on October 01, 2013 and will impact owners of property that has experienced severe repetitive loss. Those policies will increase by 25% annually until their premium rates reflect true/full risk.
  • Owners of any property that has incurred flood-related damage in which the cumulative amounts of claims payments exceeded the fair market value of such property will incur increased of 25% annually until their premium rates reflect true/full risk.
  • Also included in the Phase 2 rollout are owners of subsidized policies for business/non-residential properties in a Special Flood Hazard Area whose policies will increase by 25% annually until their premium rates reflect true/full risk.

Primary residences in SFHAs will be able to keep their subsidized rates unless or until:

  • The property is sold
  • The policy lapses
  • A property suffers severe, repeated, flood losses
  • A new policy is purchased
  • NOTE: Properties receiving subsidized insurance rates are those structures built prior to the first Flood Insurance Rate Map (pre-FIRM properties) that have not been substantially damaged or improved.

What’s ahead for 2014?

  • BW 12 calls for the phase-out of subsidies and discounts on flood insurance premiums that will result in 25% premium increases annually as outlined in BW12, Section 100205.
  • Phased out subsidized policies will move to risk-based premium rates when the community, in this case Harris County, adopts a new/revised Flood Insurance Rate Map. This will happen gradually, with new premium rates increasing by 20% annually for 5 years.
  • Owners of business properties with subsidized premiums will see premium rates rise by 25% annually until the premium reflects full risk rates.
  • Owners of severe repetitive loss properties consisting of 1-4 residences with subsidized premiums will see their premium rates rise by 25% annually until the premium reflects full risk rates.
  • Owners of any property that has incurred flood-related damage in which the cumulative amounts of claims payments exceeded the fair market value of such property will see their premium rates increase by 25% annually.
  • Property not insured as of the date of enactment of BW12 (subject to a possible exception BW12, Section 100207). Full risk rates will apply to these policies.
  • Lapsed National Flood Insurance Policies (NFIP) which are renewed will only be renewed at full risk rates.
  • Any property that is purchased after the date of enactment of BW12 will be insured under the NFIP at full risk rates. In other words, purchasing a property which previously had subsidized or discounted flood insurance is not eligible for the subsidized or discounted premiums which the property previously had.

Late 2014?

  • All other property owners, including non-subsidized policyholders, affected by FIRM changes which have been subsidized or discounted will be phased out and full-risk rates will be phased in over five years at a rate of 20% annually until the insurance premium reach full risk rates.

What can be done to lower costs?

  • Contact your insurance agent about any options available to you.
  • Obtain an Elevation Certificate to determine your correct rate. What is the value of an elevation certificate? (FEMA has a fact sheet, “Homeowners’ Guide to Elevation Certificates”, on its Federal Insurance and Mitigation Administration website).
  1. The flood insurance premium rate will be determined by comparing your building’s elevation to the Base Flood Elevation (BFE). Generally in high-risk zones, the higher above the BFE a building is located, the lower the insurance premium will be for that property. The Elevation Certificate provides the documentation necessary to make that determination. In moderate-to-low-risk zones (zones beginning with letters B, C, or X), rates are not based on elevation, so an Elevation Certificate may not be necessary in order to determine the premium. NOTE: This description is somewhat nebulous, because of wording in the ACT about the site location being “in or near” a Special Flood Hazard Area.
  2. The base flood is a flood with a 1 % chance of occurring in any given year. The BFE identifies how high the water is likely to rise (also called water surface elevation) in a base flood. The land area of the base flood is called the Special Flood Hazard Area, floodplain, or high-risk area.
  3. Flood insurance premium rates in a high-risk zone (a zone beginning with the letter A or V) are based on a building’s elevation above, at, or below the BFE.
  • Consider increasing the policy deductibles which may lower the premium.
  • Consider incorporating flood mitigation into your remodeling or rebuilding plans. Consider adding vents to your foundation or using breakaway walls. NOTE: This is already a requirement administered by the City of Houston Flood Management Department. Any new construction, or reconstruction that changes the foot print of an existing structure, must meet thisand otherrequirements.
  • Talk with local officials about community-wide mitigation steps. The Harris County Commissioners Court and the Harris County Flood Control District have already taken this into consideration via the creation of detention basins such as the Willow Waterhole Greenway Detention Basin and Project Brays as well as numerous other detention facilities located throughout the county. Willow Waterhole is about 70% complete while Project Brays is about 65% complete. Project Brays is a 50-50 project shared by the U. S. Army Corp of Engineers and the Harris County Flood Control District. HCFCD performs the work and submits invoices to the Corp for a 50% cost reimbursement. However, funding for Project Brays has virtually dried up and future funding is not assured. The Harris County Commissioners Court has stated that it will not fund flood mitigation projects due to lack of funds. The Court has said that there are more important things on which to spend money. However, as the District receives funds it will continue to utilize those funds where it deems the return on its investment in flood mitigation benefits the greatest majority of citizens.