Flood Insurance Premium Hike Affects 1M Homeowners

Homeowners can expect to see their premiums for federal flood insurance rise by as much as 25 percent. A statement by the Federal Emergency Management Agency said that up to a million homeowners can expect to see increases in their annual flood insurance premiums. A spokesman for the agency, which manages the federal flood insurance program, also said that the rate hikes were necessary to keep the troubled program solvent.

Federal Flood Insurance Fills Coverage Gaps

Due to the large number of claims and the high amounts of damage, private insurance companies no longer provide flood insurance for homeowners. In the 1960s, the federal government created a flood insurance program for homes and businesses in high risk areas. Although the law used to create the flood insurance program does not require that homeowners in high risk areas carry the policies, flood insurance is a requirement to obtain federally-backed mortgages in those areas.

Hurricane Claims Drive Up Flood Insurance Rates

After Hurricane Katrina in 2005 and Hurricane Sandy in 2012, the flood insurance program’s funds were at a low ebb. Congress passed the Flood Insurance Reform Act in 2012 to eliminate premium discounts in high risk areas. In 2014, Congress attempted to slow down the rate hikes by passing the Flood Insurance Affordability Act. Despite the attempts at maintaining affordability for the program, nearly a million out of the 5.2 million policy holders will see significant increases in their premium payments.

Worries Over Flood Insurance Program Solvency

The number of claims from storms such as Katrina, Rita and Sandy have plunged the flood insurance program billions of dollars in debt. From 2008 to 2012, the average flood insurance claim was $42,000. The rate increases are believed to be a major step in returning the federal flood insurance program to solvency. While the average annual premium is $650, homeowners in high risk areas often pay as much as double or triple the going rate.

Areas Affected By Flood Insurance Hikes

The increase in development in coastal areas, combined with the heavy damage inflicted by Hurricane Sandy on vacation homes, are two of the major drives behind increasing the flood insurance premium payments. Premium rates are expected to increase by as much as 25 percent in these areas. Policy holders will also see added surcharges, including $25 for primary homes and $250 for second homes. Robert P. Hartwig, president of the Insurance Information Institute, was quoted as saying that living in coastal areas “is going to be riskier and more expensive” and that the increasing flood insurance rates will soon be a “fiscal reality” for homeowners in those areas.

Source: NY Times

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