What The Potential Changes With FEMA Flood Insurance Means


If you’re a property owner who pays their premiums each year for flood insurance to protect your home and investments, there may be some changes coming your way. There is a new set of rules that is being proposed by U.S bank regulators that would make it necessary for homeowner’s to set aside their premiums in escrow accounts so that they can stay current and up to date on their flood insurance bills.

Most property owners are already aware that homeowner’s insurance does not include any flood damage coverage, but did you know that federally regulated lenders are still required to make sure that the homeowner’s that live in flood-prone areas have special insurance that cover some flooding. Even though this is in effect, still consumers are continuing to drop their coverage. When this occurs, a lender can impose an insurance policy on the borrower through force-placed insurance, but this is usually more costly to the homeowner.

These new regulations would come into effect after January 1st, 2016 and would be imposed by the Federal Reserve, the Office of the Comptroller of the Currency and other regulators. This was already supposed to go into effect in July of 2014, but was extended because the NFIP through FEMA has been in financial distress. The deadline for the regulation was extended under legislation that was passed last year.

When most people think of flood insurance, they are usually thinking of the National Flood Insurance Program that is controlled by the Federal Government. The NFIP covers about 5.3 consumers and businesses, and all of the policies that are sold and the filed claims are managed by private insurers.

The NFIP has been in financial distress since the middle of the last decade, due to many bad storms that hit the U.S which caused billions of dollars in damage. This program lost about $16 billion from Hurricane Katrina and about $7.8 Billion from Sandy according to FEMA statistics.

Legislation passed regulations in 2012 that was meant to stabilize the program and its finances, but it caused large hikes in the cost of premiums, which outraged the homeowners along the coastal areas. Due to the large backlash among consumers, the U.S lawmakers passed legislation to roll back increased in the flood insurance premiums.
So, what does this mean for homeowners that live in the low-lying areas that are prone to flooding? FEMA is planning an intensive audit of construction in many cities flood zones.

This is officially known as a Community Assistance Visit, and they will begin performing these between now and the spring of 2015, inspecting a handful of neighborhoods to see whether they are up to par or not. This means that the buildings that have been built in the past five years must be up to codes and must meet the requirements of FEMA’s National Flood Insurance Program.

An example of this would be neighborhoods in the five boroughs of New York that were badly damaged after the Superstorm Sandy that hit in 2012. FEMA will visit these neighborhoods that were expanded and redrawn after the disaster. Most of the property owners of these buildings will be required to join the NFIP.

Homes that are now being rebuilt due to damages are all in compliance with the flood-zone criteria. But, most of these communities raised the height of the building an additional two feet higher than required by the codes. This audit is required for all communities that participate in the program, but communities that go above and beyond the minimum usually can receive flood insurance premium discounts.

These communities that choose to go above and beyond the minimum can see discounts up to 45% on their flood insurance premiums according to FEMA. One city in one of the boroughs is keeping their expectations of FEMA’s visit to a minimum though, because they believe that the program may not carve out neighborhoods for the discounts. But, nonprofit organizations in the area are speculating that allowing these neighborhoods to join does make sense.
A neighborhood named Breezy Point is a co-cop that includes almost 3,000 homes, and they have taken many preventative measures to protect against storm and water damage. They have also applied for a FEMA grant so that they can build an even more extensive coastal barrier. This small community is hoping that if this barrier is high enough, than FEMA will revise the flood maps and cut down prices for the premiums. It’s a system: have sufficient protection, FEMA lowers insurance rates.

Other communities may not be so lucky though, and may not be eligible for the discounts. This is because many of the buildings have not been renovated in a long time, and they don’t meet the current standards for joining the program.

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