Welcome back to Part 2 of our mini-series on flood insurance and recent changes to NFIP.
In this series, we’re trying to answer some questions that came up after particularly hyperbolic news articles about changes to the NFIP (National Flood Insurance Program).
If you’re just joining in, feel free to start at the beginning
- Unravel the Flood Insurance Vocabulary – understanding what goes into setting flood insurance premiums in the US (the previous post)
- Why Were Some Policies Subsidized, but Not Anymore? – The original intent behind subsidies to some flood insurance policy holders and why that policy has changed. (this post)
- Is My Current Policy Subsidized? – How current policy holders can look up their locations and determine if their policies are subsidized. (this post)
- What’s My Future Risk? – For current policy holders and non-policy holders, how to look at FEMA’s maps and make informed decisions about your flood risk and need for flood insurance. (this post)
Step 2 – Why Were Some Policies Subsidized And Aren’t Now?
In the first post, we described how market rates are set for flood insurance premiums, and talked briefly about how the Biggert-Water Flood Act is eliminating subsidies on policies. But we didn’t really talk about what a subsidy is and why someone would have one.
A subsidized policy is any policy where the premium is less than the market rate. So the policy holder is getting a discount on their policy because the premium they are paying doesn’t correctly account for the actual flood risk at that location.
The most common reason that a policy is subsidized is because the structure in that location was built prior to when the FIRM was first established in the late 1970’s. It is also sometimes the case that FIRM has also changed over time and what used to conform to the old maps, might not conform to the new FIRM. The NFIP did not want to penalize homeowners who bought older homes, so basically grandfathered those property owners in at heavily discounted rates that did not accurately represent their FEMA/FIRM established flood risk.
The Biggert-Waters Flood Act now basically says that these non-conforming properties are no longer eligible for discounts/subsidies because FEMA can’t afford it anymore.
THIS IS A BIG POLITICAL MESS, and seems to be purple rather than red or blue. Those affected by these changes vary a lot in their means and political persuasion. Some of them are long-time property owners who have owned that property and not had any claims since for 35+ years. Many of them are more modest structures and if they are located by scenic water like the ocean or a riverfront, they may have watched many other older modest homes get torn down over the years and replaced with giant McMansions and not want to see that happen to their own home. So while some people might think it’s the McMansion owners being subsidized (and it could be, in part) it could also be people of modest means who are long time property owners.
There are other property owners that bought knowing their property was not conforming to current flood laws. When we were looking for our first home back in 2009, Mr PoP and I did look at a few that were just a block or two from the beach (our current house is ~1.5 miles from the beach), and our insurance agent at the time warned us that the policies on those beach houses (heck, one was a beach double-wide, but man was it classy!) would be subsidized and that technically our risk would be much higher than the rates would make it “feel”. That wasn’t the whole reason we didn’t buy there, but it certainly played a role.
Some people have sympathy for one group, but not the other, while others have no sympathy for any subsidized policy holders. Honestly, it’s a very sticky situation and it’s unfortunate that the government shutdown has come at a time when some policy holders feel they need guidance more than ever. Personally I can see both sides of the situation. I like the idea of having government programs that are actuarially sound, but I also have a certain level of sympathy for property owners that have owned for 35+ years, since before the maps were created. (Though I guess at that point, they are likely to be mortgage free, so they technically wouldn’t be required to buy insurance anymore…)
Part 3 – Is My Current Policy/Premium Subsidized?
Only 20% of policies were subsidized in 2012, so chances are the answer is no. But here’s how you can tell for sure…
If You Have An Elevation Certificate
The easiest way to tell if your current policy is subsidized is to look at the elevation certificate you used to get your flood insurance policy. (Of course, this only applies if you used an elevation certificate…)
If you have an elevation certificate, there should be a section of it that describes the FIRM codes and BFE for your location. (Our FEMA official elevation certificate has this information in section B.) There should also be another section where you can find the “lowest adjacent grade”, ie the lowest elevation of your structure. (Our certificate has this in section C.)
- Add your BFE and the numeric portion of your FIRM rate zone (if there is one listed) together. Note: If there is no numeric portion to your rate zone on your elevation certificate, the numbers are already added together and listed combined under BFE. (See, I told you this was confusing.)
- If this number is less than the lowest elevation shown on your elevation certificate, Congratulations! You are currently paying market rates and are not subsidized.
- If this number is greater than the lowest elevation shown on your elevation certificate, your policy was probably subsidized and you’ll likely be subject to increases in your rate (up to 25% per year) until your premium reaches market rates under the Biggert-Waters Flood Act.
If You Don’t Have An Elevation Certificate
If you know your property’s elevation, but don’t have an elevation certificate handy, you can still find your FIRM, which will help you find your BFE and rate zone.
How To Look Up Your FIRM
1. Click here to search for the digital FIRM by address. Your search results will show a map with a large area (containing your address) shaded blue.
2. Click on the hyperlink FIRM code and you get a screen asking you if you want to buy or view your map. Click view.
3. This opens a new window that has a thumbnail view of the area’s map and a small set of tool buttons for things like zoom in/out, pan, etc. Zoom into the map and pan around until you find your location. (These maps are finicky and occasionally shut me out with strange error messages. Keep trying.)
4. When you find your location, you should be able to tell if you are in a SFHA (Special Flood Hazard Area). These will be shaded, and you should be able to find a rate zone marker pointing to (or within) that shaded area. If you are non-coastal, look around for a squiggly line with a number in it within the flood plain nearest to your address. The number on that squiggly line is your BFE.
After looking up your FIRM and finding your BFE and FIRM rate zone, follow the same steps above to determine if your policy is subsidized.
If you think you might be on a subsidized policy and want more information on what your premiums might rise to, I recommend contacting your insurance agent, or reaching out to the NFIP directly.
Even if you aren’t required to have a policy right now, I think it can be a wise move to try and figure out…
Step 4 – What’s My Future Risk?
Pull up your FIRM following the directions above. Then start asking yourself some questions.
First – When was your FIRM last updated?
The date of the last update to your firm can be found in the legend of your map. Ours was 2008. The older it is and the more changes and development there have been to your area since the last update, the greater the probability for changes in the map going forward.
Second – Are you in an area that’s “borderline”? Is your property smack dab in the middle of a SFHA or are you near the border of a rate zone? How much of a difference is there between your lowest elevation and the minimum required to be conforming (ie BFE + numeric part of the rate zone)?
Both of the structures we own (our small home and our duplex) are located in SFHAs, but, oddly, a very short walk away from both are areas that are not considered SFHAs. So we’re in areas that we call “borderline good” – the outside edges of a large SFHA. Mr PoP and I aren’t going to assume that FEMA is going to reclassify our areas as non-SFHAs any time soon. But even if the SFHAs stretch out to encompass more area in future updates, we’re already in the SFHAs and the next worse numeric zone is quite a ways away, so it would require pretty significant changes to the maps to change our risk profile and premiums.
Additionally, our structures are both at least a couple feet above the current minimum conforming elevation (ie our current BFE + rate zone), so we have a bit of leeway should there be an incremental change in the BFE or the numeric portion of the rate zone.
Third – When Is the Next Scheduled Update To Your FIRM?
This is a map that shows the schedule of all the upcoming FIRM changes to coastal areas (if you go here, you should be able to look notices about your own community up even for non-coastal areas). For us, most of coastal Florida is due for new FIRMs in 2017 and 2018, and luckily when these rate maps are being finished by FEMA there will be a period of public review before they go into effect. If there are significant changes to our maps that will increase or decrease our flood insurance premiums we’ll have a few options:
- pay the higher premiums as long as they’re not prohibitively high
- contest the map changes (though I get the impression this is harder than contesting your property taxes)
- sell the property and move
- pay off the mortgage or HELOC, which would eliminate the requirement for flood insurance and decide to self insure or find alternative, perhaps less comprehensive, coverage.
None of these questions provide guarantees of what will happen in the future, but being able to find reasonable answers should allow you to be better prepared for changes to flood insurance premiums and policies in the future.