In lite of the recent remapping of FEMA’s flood zones, some people have seen drastic increases in their premiums for their flood insurance and could be forced to sell their property if they cannot afford it. Due to the financial burden that this is causing to so many homeowners, the government has passed a bill that would slow the price hikes, but not stop them altogether.
The bill will only slow the rate increases, not stop them altogether. Some homeowners could see their premiums jump tens of thousands of dollars in the coming years. The bill will cap the rate increase at 15% per year and will be phased in over a long term basis, but, in the end, all of the policies will eventually end up increasing. The Government’s goal is to have financially sound rating structures which it believes would mimic the rates that a private company would charge without any subsidies.
This bill will also not make it any easier to sell a home that is located in a flood zone. The likelihood of someone buying a home on a 30-year mortgage, knowing that the flood insurance has the potential to go up 15% every year in some of the extreme cases is very small. You could end up paying more for flood insurance than you are for your mortgage if the rates continue to increase.
Private insurers have no interest in the Flood Insurance markets as they are unwilling to compete with government-subsidized rates. As the underwriting and pricing near closer to being actuarially sound, some private companies may enter the market, but that could be a long ways from now.
The National Flood Insurance Program is $24 billion in debt, with a borrowing cap of $30 billion. For reference; Superstorm Sandy cost the NFIP $8 billion in losses. The bill doesn’t state what the course of action would be if another major storm happens, and could cause the rate increases to be accelerated.
The current bill, while a blessing for many, is only a short-term solution to the very real problem that the Flood Insurance Program has been avoiding for many years. The cost of the policies are not actuarially sound, and in order to stay solvent for years to come, rate increases are inevitable.
For more information on Flood Insurance, or to check your risk of a flood affecting your home check out the link below: https://www.floodsmart.gov/floodsmart/?cid=Search_GoogleAdwords_FEMABrand_c_g_b_nfip