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The Bigger-Waters Act Raises Home Flood Insurance Costs

By Edited Feb 13, 2014 0 0

The Bigger-Waters Act is set to take effect at the end of 2013. The new legislation is a federal law that will cause massive increases to flood insurance premiums for homes that are within the 100-year flood plan regions. The purpose of the new law is to regain some of the losses that the National Flood Insurance Program incurred due to significant increase in claims from Hurricane Katrina. The Bigger-Waters Act aims to increase the stability of the government’s program in the event of another Katrina-sized natural disaster.

            Furthermore, The Bigger-Waters Act ends two grandfather clauses that have prevented flood insurance premiums from significantly increasing. One of the clauses allows homes that were built before 1975 to have subsidized flood insurance rates as long as the residential community it was in adopted higher flood standards. The other clause prevents insurance rates from being based on flood maps used when the home was originally constructed. Before this clause was eliminated, when a home changed owners and the flood insurance rate was to be re-evaluated, the rate would be based on the flood maps of the year that the home was built. Now, the flood maps that are being used for the area at the current time will solely determine the flood insurance rates. These are the two grandfather clauses, in place since the 1970s, that homeowners will no longer be able to adopt on their flood insurance rates because of the Bigger-Waters Act beginning in October of 2013.

            However, these subsidies mainly applied to those for which these homes were second houses or real estate investment properties. Thus, there is a greater possibility for this new law to greatly impact the profitability or sustainability of these coastal homes. Higher insurance rates will significantly impact homeowners who may not be able to afford their homes any longer under the new law. The Bigger-Waters Act is not yet clear on how this will affect those for which the homes in flood danger zones are their primary domiciles.

            One main worry of the homeowners that have homes in the areas around the flood danger zones is the increased chance they will soon become impacted by higher flood insurance rates. The new law would dictate that if the maps changed and their flood insurance was up for re-evaluation, they would have to pay the higher rates. Of greater concern, is that some of these homes are not immediately near any real danger from flood related issues, but would still have to pay a higher insurance rate.

            Another possible problem with The Bigger-Waters Act is the impact it will have with those for whom their homes are their main investments. Owning a home for most people is a significant security for their investments. Raising flood insurance premiums by thousands of dollars a year would have a major effect on the owners who are in the business of investment properties. Coastal homes and other homes near flood zones would instantly be less affordable to investment managers. This would deeply impact the economies of states that have large coastal populations and could expand to the entire country as a whole. Old homes would sit on the market even longer because buyers would not be able to reconcile with the massive increases in the flood insurance under the new law.

Perhaps of greatest danger is that people will completely go without any flood insurance. This would be of particular issue to those that these residencies are their primary homes. If a homeowner was not able to afford flood insurance and did not want to part with their home, they could opt to not purchase flood insurance at all. Then, if a natural disaster were to occur, the homeowner could lose everything. Over the next few years it will be important to watch how this new law affects those around potential flood zones.



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