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Wendy Lathrop and Barton Crattie did an excellent job describing the BiggertWaters Flood Insurance Reform Act of 2012 (what I lovingly refer to as BW-12) and its impact on land surveyors in the Vol 9, No 8 edition of The American Surveyor. I am not totally sure that anyone realizes yet the full impact of this legislation not only to surveyors, but lenders, home owners, business owners, insurance agents and anyone remotely involved in the flood insurance business.
As different parts of BW-12 are implemented by FEMA, surveyors are going to see a rise in requests for Elevation Certificates. Consequently, it is important that surveyors not only stay informed about how BW-12 affects flood insurance premiums, but also know the mitigation options that home and business owners can do to offset non-compliant structures located in a high-risk Special Flood Hazard Areas (SFHAs).
Some of the changes to come out of BW-12 have already occurred and many more are yet to come–those being implemented in the coming months of this calendar year. Probably the biggest attention getter, at least as it concerns the American public at large, is the rate increases in the National Flood Insurance Program (NFIP)–rate increases which will be implemented pursuant to the BW-12 legislation and that are intended to more closely reflect the "true flood risk" of the structure being insured. The rate increases will affect some, but not all, of the NFIP policyholders.
New Rate Increases on the Horizon for Many Flood Insurance Policy Holders of Older Buildings
According to FEMA, "the new law encourages Program financial stability by eliminating some artificially low rates and discounts." Except for mainly primary residential homes, flood insurance premiums for structures built before the community’s first Flood Insurance Rate Map (known as pre-FIRM) that currently receive subsidized premiums will now move toward full risk rates. "Actions such as buying a [pre-FIRM] property, allowing a policy to lapse, or purchasing a new policy can trigger rate changes. Rates for most properties will more accurately reflect risk. Subsidized rates for non-primary/secondary [pre-FIRM] residences are being phased out now. Subsidized rates for certain other classes of [pre-FIRM] properties will be eliminated over time, beginning in late [October] 2013."
"Not everyone will be affected immediately by the new law–only 20 percent of NFIP policies receive subsidies", FEMA reports.
Those property owners affected by rate increases include:
• Owners of subsidized policies on [pre-FIRM] non-primary/secondary residences in a Special Flood Hazard Area (SFHA) will see 25 percent increases annually until rates reflect true risk–began January 1, 2013. About 400,000 non-primary homes will move toward actuarial rates.
• Owners of subsidized policies on [pre-FIRM] properties that have experienced severe or repeated flooding or that have been substantially improved will see 25 percent rate increase annually until rates reflect true risk–beginning October 1, 2013.
• Owners of subsidized policies on [pre-FIRM] business/non-residential properties in a Special Flood Hazard Area (SFHA) will see 25 percent rate increases annually until rates reflect true flood risk — beginning October 1, 2013.
• Owners of subsidized policies on [pre-FIRM] severe repetitive loss properties consisting of 1-4 residences will see 25 percent rate increases annually until rates reflect true flood risk–beginning October 1, 2013.
• Owners of any [pre-FIRM] property that has incurred flood-related damage in which the cumulative amounts of claims (payments) exceeds the fair market value of the property will see 25 percent rate increase annually until rates reflect true flood risk–beginning October 1, 2013.
• (It is important to note that each property’s risk is different. Some policyholders may reach their true risk rate after a couple years of increases, while other policyholder increases may go beyond five years to get to the full risk rate required by the new law.)
Primary [pre-FIRM] residences in SFHAs will be able to keep their subsidized rates unless or until:
• The property is sold (subsidized rates cannot be assigned to the new owner);
• The policy lapses;
• The structure suffers severe or repeated flood losses; or
• A new policy is purchased.
New and renewal policies within these classifications on or after the enactment of BW-12 will be issued at full-risk rates starting October 1, 2013.
Further, the changes to grandfathering rates (for those that had been affected by map changes) are expected to be implemented in late 2014 and will be phased out over 5 years, with a 20% per year increase to reach full risk rates, according to FEMA.
(Reference: bw12_sec-205_207_ factsheet4_132013[1].pdf; bw_timeline_table_04172013[1].pdf; and http://h-gac.com/community/water/rfmc/fast/meetings/fast_2013-04-17_presentation.pdf )
As of January 1, 2013, Preferred Risk Policies (PRPs) issued on properties newly mapped into high-risk areas may continue beyond the previously designated two-year period until FEMA completes its analysis and implements a revised premium structure put in place with BW-12, but these are expected to be completely eliminated, along with grandfathering, by late 2014. Meanwhile, FEMA will be increasing PRP Extension premiums by 20%, starting October 1, 2013. (floodsmart.gov)
For policy holders in areas affected by recent storm and disaster events, the new flood insurance policy rate increases could be very profound. For that reason, a number of experts and organizations have encouraged damaged home and business owners to "rebuild safer, higher and stronger".
More intense and frequent storm events are increasing the risk to future flood damages in a lot of areas. For that reason higher flood ordinance standards, stronger building codes, and Advisory Base Flood Elevations (ABFEs) after flood disaster events are becoming the norm, rather than the exception.
Digging out of a Financial Hole
Of course, these rate increases will have a plus side, as well, hopefully bringing the NFIP out of the 25 billion dollar hole (post-Sandy) it has gotten itself into since Katrina, and making the NFIP more sustainable and financially stable over time.
Push-back to the BW-12 legislation has already begun in a number of states and with a number of pieces of legislation, specifically aimed at the affordability issue. As recently as April of this year, organizations like the Association of State Floodplain Managers (ASFPM) have weighed in on the affordability issue (http://floods.org/index.asp?menuID=651#Flood_Insurance_Affordability), but it’s anybody’s guess right now what Congress will do over the next few months. Not knowing whether any of these Custer’s-last-standtype legislative mechanisms will work, it is best to prepare now for the inevitabilities of the future.
Homeowners and Businesses Owners Can Prepare Now for the New Rates
Extensive media coverage of events like Katrina, Rita, Irene, and Sandy has hopefully taught the American public that Mother Nature does not read flood maps and that flooding can and will occur outside of the specified "line on the flood map". Additionally, testimonials from these same flood events have hopefully dispelled the notion that if a home or structure does flood that flood insurance and community support agencies will "make them whole again". Flooding is, and
continues to be the nation’s #1 natural disaster with homeowners having a 1-in-4 chance (or greater depending on the area) of flooding within the span of a 30-year mortgage. Just a few inches of water inside a structure can cost tens of thousands of dollars in damage–damage a standard homeowners policy does not cover. Yet, thousands of Americans have lost their home, all of their possessions, and their lifetime investment in the blink of an eye, as a disastrous flood event occurs at their doorstep.
According to Dennis Mileti, Professor Emeritus at the University of Colorado at Boulder where he served as the Director of the Natural Hazards Center and as Chair of the Dept of Sociology, "People are more likely to take actions if you show that those actions can cut their losses if something happens". With that in mind, home owners and business owners should talk to their insurance agent about how changes might affect their property and their flood insurance policy. There is a lot that these property owners can do to be prepared:
• First, (and that’s where the surveyors come into play) an Elevation Certificate needs to be secured for the structure to assess the true flood risk of the property and to determine the correct flood insurance policy rate for the structure.
• Second, meeting building code requirements and following current best practices will reduce potential risk to future flood loss. Best practices involve building above code and can include elevation of utilities such as hot water heaters, air conditioning units and furnaces. A great video on some of these best practices can be found at youtu.be/V2Tw8nVRH1c.
• Third, flood mitigation techniques should be explored. These methods can include: Raising the structure above the Base Flood Elevation (BFE)–this will reduce flood insurance premiums and potentially save 85 percent or more in the cost of a flood insurance policy and, subsequently, save thousands of dollars over the life of a home or business. In many cases, the cost of elevating the structure will be saved in a few years through reduced flood insurance premiums (see the FEMA illustration above).
Adding flood openings to the walls of the structure below the Finished Floor Elevation (FFE) It should be noted that flood openings are required not only by the NFIP, but also by the national, state and local building codes, in any enclosed area, below the base flood elevation subject to flooding.
Flood openings/flood vents allow for flood waters to automatically flow into and out of enclosed areas and lessen the risk of structural damage caused by the pressure of floodwaters on exterior walls during a flood event. If flood openings/flood vents are not present, the building’s structural integrity is at risk and the National Flood Insurance Program mandates that the risk of collapse or failure must be insured against.
SmartVent foundation flood vents are a great mitigation (new construction and retrofit) product that can lower flood risk. In retrofit situations, when a structure is not in compliance with flood opening requirements, and SmartVents are installed, the makers of SmartVent estimate an average 83% savings in flood insurance premiums for property owners. SmartVent also takes great pride in being the only FEMAAccepted and ICC-ES Certified Flood Vent nation-wide on the market today.
Tom Little, Vice President of SmartVent states that the "return on the investment for the install is experienced in less than 2 years, so it becomes a "no brainer" for the property owner to use our product."
As an added bonus for surveyors, the elimination of liability from miscalculating potentially non-compliant flood openings is eliminated with SmartVents. Each SmartVent has a label on it identifying the ICC-ES report number, the model number and the area of certified coverage–usually 200 square feet for each SmartVent flood opening.
Other mitigation techniques can include:
• Using breakaway walls below the Finished Floor Elevation (FFE) in V Zones (zones with velocities associated with flood waters)
• For commercial structures, floodproofing below the Base Flood Elevation (BFE)
A property owner can either pay now in higher standards for new construction, mitigation techniques or retrofit applications or pay later with increased flood insurance premiums.
Next month, in part 2 of this article, we will explore Community Investments in Reducing Flood Insurance Premiums, the continuing problem with A Misinformed Public, especially when it comes to their flood insurance, and Today’s Surveyor in Relation to Biggert-Waters.
A special thanks is extended to Larry Larson, ASFPM, and Bruce Bender and Gary Heinrichs, ASFPM Flood Insurance Committee, who graciously provided technical editing for the BW12 information provided in this article.
Terri L Turner, AICP, CFM, is the Development Administrator/ Floodplain Manager/Hazard Mitigation Specialist for the City of Augusta (GA) Planning and Development Department. Prior to coming to the "Planning World", Terri spent 16 years working for civil engineering and surveying firms and knows the importance of surveying to any development project. Terri is currently also the Region 4 Director and the No Adverse Impact (NAI) Committee Co-Chair of the Association of State Floodplain Managers (ASFPM). Terri spends much of her free time touring the nation speaking on sound floodplain management, hazard mitigation, climate change adaptation, and sustainability and resiliency initiatives for local governments.
A 1.809Mb PDF of this article as it appeared in the magazine—complete with images—is available by clicking HERE