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Monday, March 24, 2014

Wading Through the Red Tape to a Victory in Flood Insurance!

Unless you are a realtor, mortgage banker or insurance sales person you probably have remained confused about the Flood Insurance Reform, what it means, or how it will affect you personally. Many people are misinformed, and some of that misinformation actually comes from the media. When it comes to bills, acts, and all of that government jargon, most folks just put their faith in the media to translate for them. While the actual concept of the reform was financially frightening, the misinformation was more like a horror story. The good news though, is that on March 21, 2014, President Obama signed the Homeowner Flood Insurance Affordability Act into law, so we can all breathe a sigh of relief. But, what we at SouthGroup Insurance would like to do here is break down the Flood Insurance Reform and the Homeowner Flood Insurance Affordability Act into bite sized pieces that will give the consumer a better understanding of what has been flooding our heads with confusion!
Flooding has been, and continues to be, a serious risk in the United States. To address the need, in 1968, the U.S. Congress established the National Flood Insurance Program (NFIP) as a Federal program. It allowed property owners to purchase flood insurance if the community had adopted floodplain standards for new construction. However, owners of existing homes and businesses did not have to rebuild their structures to the higher elevation standards, and many consumers received subsidized rates that did not reflect their true risk exposure. Over the years, the costs and consequences of flooding have continued to increase. After many studies, for the NFIP to remain sustainable, the premium structure would have to more accurately reflect the true risks and costs of flooding.

In 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) which calls on the Federal Emergency Management Agency (FEMA), and other agencies, to make a number of changes to the way the NFIP is run. Key provisions of the legislation required the NFIP to raise rates to reflect the true flood risk, to make the program more financially stable, and to change how Flood Insurance Rate Map (FIRM) updates impact policyholders. The changes meant huge premium rate increases for most policyholders over time, and in some cases, exponential increases right away.

Under BW-12, policyholders with subsidized policies for non-primary residences, businesses, and severe repetitive loss properties, would see large increases. Subsidies would be removed for policies on newly purchased properties, lapsed policies, policies covering properties for the first time, properties of one to four residences that have experienced severe repetitive loss; and properties that have incurred flood-related damages where claims payments exceed the fair market value of the property. Most policyholders would see a new 5% charge on their premiums to cover the Reserve Fund assessment that is mandated by BW-12.

Rate changes would have had the worst impact on properties located within a Special Flood Hazard Area that were built before a community adopted its first Flood Insurance Rate Map (FIRM) and had not been elevated. For many communities, the initial FIRM would have been adopted in the 1970’s and 1980’s. Many of these pre-FIRM properties have been receiving subsidized rates. There would also be premium changes for policyholders after their community is remapped. Currently, the NFIP Grandfathering procedure provides the option of using risk data from previous Flood Insurance Rate Maps (FIRMs), if a policyholder has maintained continuous coverage, or if a building was constructed "in compliance" with the requirements for the Zone and Base Flood Elevation (BFE) reflected on a previous FIRM. A provision of BW-12, however, required FEMA to use revised flood risk data (Zone and BFE) provided by the latest map revision, thereby eliminating Grandfathering.

Thankfully, the Homeowner Flood Insurance Affordability Act was signed and will address many of the unintended consequences of BW-12. Here are some highlights:

+ Average rates will only be allowed to increase 15%-18% annually.

+ Property that is purchased will be provided the same flood rates as the prior owner.

+ Grandfathering will still be honored.

+ Refunds will be returned to policy holders who were detrimentally impacted by BW-12

+ Policies will be surcharged $25 for primary homes and $250 for all other policies to build an NFIP reserve to build a cushion for future catastrophic losses

+ Installment payments will be allowed, as well as higher deductible options

Some more fun information: A community’s Flood Insurance Rate Map (FIRM) shows the base flood elevations, flood zones, and floodplain boundaries. Each zone communicates the risk of flooding for that area. Everyone lives in a flood zone, but the risk of flood is different based on the area. The BFE is the computed elevation to which floodwater is expected to rise. A Special Flood Hazard Area, or high-risk zone, has a 1 in 4 chance of flooding during a 30-year mortgage. For a property in the high-risk zone, you need to know the elevation of the structure in relation to the BFE. Generally, the higher the elevation of the structure above the BFE, the lower the flood risk. All of these measurements are shown on an Elevation Certificate, which is a form completed and signed by a licensed engineer or surveyor. So to determine the premium for a property in a high-risk zone, you first need an elevation certificate. Then, an insurance agent can calculate the premium based on the amount of coverage desired.

Still sound like a foreign language? Call SouthGroup Insurance and speak with one of our licensed agents to learn more. We offer full insurance reviews of all your policies at no charge, helping you better understand what coverage is best suited for you personally and why. No appointment is necessary to visit one of our 3 convenient coastal locations in Bay St. Louis, Diamondhead and Biloxi. Call SouthGroup today and we can help you through your flood of confusion and protect you from getting drowned!

We are your LOCAL Trusted Choice Advisors, SouthGroup-Gulf Coast / ,
SALES AND SERVICE AGENTS: Angelyn Treutel Zeringue, Tammy Garfield, Tammy Hogue, Brittany Jones, Wendy Johnson, Denise Russell, Melissa Moran, Alex Treutel, Susan Monti, Anne Gillam, Ashlie Moody, Michael Reso and Whitney Zimmerman at SouthGroup Gulf Coast. You can reach us by snail-mail or in person: 412 Hwy 90, Suite 6, Bay St Louis MS 39520, email: , phone: 228-466-4498 , fax:888-415-8922, FaceBook, or Twitter !

We have 3 Gulf Coast locations to serve you - 2505 Pass Road - Biloxi, 5400 Indian Hill-Diamondhead, and 412 Hwy 90 Ste 6-Bay Saint Louis, MS. We write coverage in 40 different states and can assist you with Mississippi insurance, Louisiana insurance, and Alabama insurance and many other states. Insurance is stressful, but we make saving easy.  We help you save money on insurance!

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