Stunned by the bill for your latest flood insurance premium? You're not alone. "There are cases where policy premiums went from $1,000 per year to $18,000 per year," says Keith Brown, president and CEO of National Flood Services Stoneriver, a Kalispell, Mont.-based company that provides flood insurance support and management for retail insurance companies.
The 2012 Biggert-Waters Act mandated those higher flood insurance premium rates to quickly get the National Flood Insurance Program (which is administered by the Federal Emergency Management Agency) back on a sound financial footing. Thanks to multiple devastating floods in the last few years, caused by hurricanes like Katrina and Sandy, the NFIP has paid out far more in claims than it has collected in premiums. That's left the program in the red by about $24 billion.
"Congress told FEMA to make the NFIP actuarially sound," Brown says. That is, Congress wanted citizens to pay premiums that reflect the real monetary risks and costs of building or re-building flood-prone properties. "But that led to some pretty steep price increases for some people," says Brown.
Indeed, when the big premium bills went out last fall, voters erupted in howls of protests so loud that their representatives and senators heard them in Washington, D.C. The Senate and the House immediately proposed bills to relieve property owners' pain.
On March 4, the House passed H.R. 3370, the Homeowner Flood Insurance Affordability Act. Now the Senate must formally either accept the House's bill or create its own. Then the Senate and House will compromise on a rate relief bill that will become law.
After that, people who faced large premium increases because they sold or purchased a home will receive retroactive refunds. Where property premiums are based on FEMA's current flood maps, property owners will receive subsidies. The new law will still support the stabilization of the NFIP's finances, because it will call for premium increases. But those increases can't exceed 18 percent per year. The high premiums will be rolled back, and scared property owners will be able to breathe again.
Flood damage is not covered under standard homeowner insurance policies so separate flood insurance is typically bought from the NFIP.
Even with immediate rate relief and gradual increases, premiums must rise to keep the NFIP operating. Flood insurance has been a heavily subsidized federal monopoly since Congress created the NFIP in 1968. Thanks to the recent trend of bigger, more destructive and more costly floods, the NFIP simply can't subsidize artificially low premiums any more. It must eventually charge rates that more closely reflect the real financial risks of building or re-building in flood-prone locations. If NFIP can't charge those rates, the program could go bankrupt or find itself repeatedly borrowing money from the U.S. Treasury - which is funded by taxpayers.
Nevertheless, owners of at-risk properties need not helplessly watch premiums increase over time. Instead, they can work with their communities and the NFIP to reduce premiums. Reductions of up to 45 are available to communities that qualify for credits based on mitigation and preventive measures.
For most people, the NFIP just provides flood insurance. However, the program's mandate is to improve flood plain management in the U.S., reduce the frequency and severity of floods and minimize the loss of lives and the destruction of property caused by floods. To fulfill that mandate, the NFIP sets minimum requirements for flood plain management and flood prevention and mitigation that communities must meet before they can participate in the flood insurance program.
Unfortunately, meeting the minimum requirements doesn't always protect communities from severe floods. Therefore, in 1990, the NFIP created the Community Rating System (CRS) for cities, towns, villages and counties that go above and beyond the minimum flood prevention requirements. Communities that do more than the minimum can earn flood insurance premium discounts for "special flood hazard areas." These are the locations most vulnerable to flooding.
CRS participants also gain less tangible but ultimately far more important rewards. "Another benefit [of CRS] is to create awareness in the community," Brown says. "People may not know they're in flood zones and [that they] should adopt flood prevention and mitigation techniques." Avoiding a flood and all the suffering that goes with it is worth far more than even the highest premium discount.
To participate in the CRS, "a city must have support from the city leadership and the residents," says Carl Walker, floodplain manager for Roseville, Calif. A community must also designate a local CRS coordinator. Finally, it must document that it's more than met NFIP's minimum requirements by at least 500 CRS "credits."
Credits come in four flavors:
The four categories comprise 18 different activities. The National Flood Insurance Program Community Rating System Coordinator's Manual serves as the essential "user's manual" for the system. Among many other topics, it describes all 18 activities and their credit values.
Once a community has the support of its leaders and residents, a CRS coordinator and documentation for those first 500 credits, it should write a "letter of interest" in the program. The letter must be signed by the community's top elected official. Finally, the local government sends the letter and accreditation documents to its regional FEMA office.
NFIP will send an expert for a "community assistance visit" to verify that your community has exceeded the minimum NFIP standards. Verification visits occur annually to ensure that communities stick to CRS' rules.
The CRS classifies or rates communities on a scale of 1 to 10, where 10 is the minimum rank and 1 is the best. The better the rating, the greater the flood insurance premium discounts.
Each class or rating requires a community to earn a specific number of credits. For example, when a community earns its first 500 credits, it gets a "9" rating -- and a five percent flood insurance premium discount. A "5" rating requires 2,500 credits, resulting in a 25 percent discount. The highest rating is a 1, which requires 4,500 credits and is worth a 45 percent premium discount.
Once a community qualifies for a discount, residents see the discounts on their flood insurance bills issued by the NFIP.
Only one community in the country out of more than 21,600 CRS participants has reached that pinnacle: Roseville, Calif. Among many other credit-worthy activities, Roseville almost entirely cleared its floodplain of buildings, which helps prevent flood waters from flowing around buildings to unexpected, more vulnerable locations. Another activity involved elevating homes and other structures well above the water level of a 100-year flood so water can't flow in and destroy the properties.
If you don't know if your community participates in the CRS, call your local government offices and ask. "Find your city's floodplain manager," says Walker. "He might be in planning and plan review or the public works department, but he is most likely to be in building inspections and permits." The floodplain manager can tell you whether or not your community participates in CRS.
If your community does not participate in CRS, and you'd like it to do so, "Contact your city or county government in the same way you would for anything else you want done, such as repairing roads or filling potholes," Walker says. "It's the same process with CRS."
Completing CRS activities isn't cheap. Since 1995, Roseville has spent $10 million in city money and $8.7 million in federal grants to make the city as flood-proof as possible. Federal grant money is also available for your town's CRS projects, and your regional FEMA office can point you in the right direction to apply for them.
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