When Congress passed the Biggert-Waters Flood Insurance Reform Act in 2012, the five-year National Flood Insurance Program (NFIP) reform bill brought certainty to real estate transactions in more than 21,000 communities nationwide where flood insurance is required for a mortgage. It also set in motion a phase-out of federally subsidized insurance premium rates for older second homes, those that have had severe repetitive losses and business properties.
REALTORS® should also be aware that any property purchased after October 1, 2013, that requires flood insurance will be eligible, but not at the subsidized rate.
The five-year enactment of the bill was supported strongly by the REALTOR® organization because of the stability it brings to the housing market. Between 2008 and 2012, Congress had been extending the NFIP for only a few months at a time, which led to several shutdowns. For example, a lapse in June 2010 stalled more than 40,000 home sales across the nation.
The reform bill was a significant development for the 5.6 million business- and homeowners who rely on the NFIP, as well as the U.S. taxpayer who will spend less on federal assistance for flood disasters as a result. The changes to the NFIP were in response to the growing costs of flood insurance claims across the nation, and are designed to ensure the program remains fiscally sound by implementing a premium structure that accurately reflects risks and costs associated with flooding.
Against this backdrop, the Federal Emergency Management Agency is continuing its ongoing update of floodplain maps under its Map Modernization Initiative. These maps identify Special Flood Hazard Areas, which are lands at a high risk of a major flood, and determine where flood insurance is required.
The elimination of federal subsidies combined with new flood zone maps increasing the number of homeowners required to have flood coverage will continue to have a dramatic effect on homeowners and communities in the months and years to come.
Real estate professionals will be on the front lines in assisting their clients and customers in understanding the NFIP and how these changes will affect buyers and sellers.
NFIP Toolkit from NAR
- Background on NFIP
- Section by Section Highlights of Flood Insurance Reform Act
- Talking Point/Debating the Issue: Flood Insurance Reform
- NAR Issue Brief: Homeowner Flood Insurance Affordability Act
- NAR Testifies for Flood Insurance Affordability Bill
- Mitigation Can Soften Flood Insurance Hikes
- FEMA Presentation: Changes to the NFIP
- FEMA: Who Will be Impacted by Pre-FIRM Rate Increases Nationally
- FEMA: Biggert-Waters Flood Insurance Reform Act of 2012 Timeline
- FEMA: Q&A on Biggert-Waters Flood Insurance Reform Act of 2012
- FEMA: Overview of NFIP
- FEMA Information on changes to the policies and rates of the NFIP
FEMA’S Rate Relief Programs
In anticipation of increasing flood insurance rates, FEMA identifies several options that may directly or indirectly result in flood insurance discounts to policyholders.
NFIP Community Rating System
The NFIP Community Rating System (CRS) offers insurance premium discounts (up to 45 percent) for individuals in communities implementing floodplain management practices that exceed the minimum requirements of the NFIP. By implementing CRS floodplain management best practices, flood losses are reduced, public safety is enhanced, and the cost of flood insurance is decreased.
FEMA’s Hazard Mitigation Assistance (HMA) Program
FEMA’s Hazard Mitigation Assistance (HMA) grant programs provide funding for eligible mitigation activities, including elevating properties, that reduce disaster losses and protect life and property from future disaster damages.
An Elevation Certificate is an important tool that documents your building’s elevation. The below fact sheet provides valuable information for homeowners including guidance for obtaining an Elevation Certificate which is necessary for determining full-risk rates in high-risk zones. It may also show that you may be paying too much for flood insurance.
FEMA Flood Map Appeal
If a person believes their property was incorrectly included in a NFIP-identified Special Flood Hazard Area (SFHA), they may submit an application to FEMA for a formal determination of the property’s location and/or elevation relative to the SFHA.
Raise the Deductible
And like any other insurance policy, you can always raise the deductible.
Resources for REALTORS® and Consumers
- NAR Legal Guidance on Disclosures
- FEMA: Flood Insurance Rate Maps
- NAR/FEMA Brochure: What To Ask Your Insurance Agent
- NAR/FEMA Brochure: What to Know and Say About Flood Risk and Flood Insurance
- HouseLogic: What Consumers Need to Know About Flood Insurance
- FEMA: Homeowner’s Guide to Elevation Certificates
- FEMA Risk MAP program guidance
Additional Information & Research
- RAND Gulf States Policy Institute Analysis of the NFIP and Proposed Reforms
- CRS Report: Status and Remaining Issues for Congress (2013)
- University of PA – The Wharton School: NFIP Issue Briefs
- GAO Report – Flood Insurance: More Information Needed on Subsidized Properties
For the official site of the National Flood Insurance Program, visit floodsmart.gov.
Information and resources on the NFIP from the National Association of REALTORS®.
Additional FEMA information