David L. Miller, associate administrator with the Federal Insurance and Mitigation Administration, part of the Federal Emergency Management Administration (FEMA), released a memorandum with guidelines for insurance companies that sell flood insurance on behalf of the National Flood Insurance Program (NFIP).
The guidelines – called “Phase I Implementation of the Homeowners Flood Insurance Affordability Act of 2014” – generally roll back the cost of flood insurance policies for most homeowners and buyers to the level charged before October 2013 when higher rates kicked in. The new guidelines become effective May 1, 2014.
“The purpose of this bulletin is to stop charging full risk-rates for all types of Pre-Flood Insurance Rate Map (FIRM) properties covered by section 3 of the (newest flood law), which includes primary residences and businesses,” Miller says in the memorandum.
Section 3 of the new flood law requires insurance companies that sell flood insurance on behalf of FEMA – called Write-Your-Own (WYO) companies – to restore Pre-FIRM subsidized rates for:
″ Pre-FIRM properties not insured when Biggert Waters was enacted
″ Pre-FIRM properties sold after Biggert Waters was enacted
″ Policies for Pre-FIRM properties rated full-risk under Biggert Waters due to a lapse in coverage
There are two gray areas in the memorandum for homebuyers. Since May 1 is two weeks away, what happens to homebuyers who need flood insurance before then? Until today’s memo was issued, owners and buyers paid the higher flood insurance rate to get or maintain coverage, and they expected to receive a rebate sometime in the future.
“Some insurers are ‘working it out,’ but supposedly, the full-risk rate premium is to be charged until May 1,” says Lisa S. Jones, a flood insurance specialist with Carolina Flood Solutions and consultant to the National Association of Realtors® (NAR). The two-week hiatus is awkward, and it’s not clear how individual insurance companies will choose to handle it. However, going against the rules “could get them into trouble,” Jones says.
The second gray area involves the actual charge for a flood insurance policy, and some homeowners could face a surcharge later after FEMA completely rolls in the new law.
“Currently, homeowners are paying the higher rates and expecting a refund later,” says Jones. “Under the new rules, rates temporarily roll back completely to their pre-October 2013 level. But the new law still allows some increases. Once the law is fully implemented, some individual homeowners and buyers may not see a difference, or will have to pay higher premiums on secondary homes once the surcharges and annual increases are applied at renewal.”
The complete memorandum, including a list of the homes and flood zones affected, is posted on Florida Realtors Flood Insurance Toolkit.
© 2014 Florida Realtors®