Nearly all flood insurance is sold by the federal government's National Flood Insurance Program (NFIP). In 2012, the NFIP passed the Biggert-Waters Flood Insurance Reform Act. The act eliminates government subsidies for some 20% of flood insurance policyholders. Most of these policyholders live in areas that have been deemed at high flood risk by new NFIP zoning maps.
When the act was passed, many in the flood insurance industry supported it, saying it would help reduce the deficit caused by low, subsidized insurance premiums for homes in high-risk areas.
"We need these reforms to move premiums to more economic soundness," said Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies. "Historically, prices for premiums have been too low, especially in high flood areas where they don't reflect the risk of flooding.”
But as many home-owners are finding out, their new flood insurance rates are astronomically higher than their old ones. In some cases, flood insurance premiums for owners of high risk home have risen by over 1000% -- a financially crippling new expense for any homeowner.
One of these homeowners is Sarah Curtin, a Hingham Massachusetts resident. Until this year, Curtin paid $300 per year for flood insurance. But under the new NFIP laws, her premium has risen to over $7,000. Curtin’s home is not in a NFIP high-risk flooding zone. But one corner of her property is, making her liable to pay the new premium.
To make matters worse, NFIP agents deducted $6,900 directly from her bank escrow account to pay for the premium without even informing her. Curtin was eventually able to have the funds returned to her account, but not before she argued with NFIP representatives for months.
In order to have her policy reduced, Curtin must obtain an elevation certificate proving that her home is not in a high-risk area. Curtin must pay for the certificate out of her own pocket.
Curtin – who said the new flood insurance program may make it impossible for her to afford her home – is not unlike many homeowners across the country. Imagine paying $300 per year for health insurance only to be told one day that you must now pay $5,000 a year.
The new expenses will be so crushing for so many that the Mississippi Department of Insurance has filed a lawsuit against the NFIP. Coastal states like Mississippi are home to thousands of residents living in homes in high-risk flood zones.
The lawsuit is against FEMA – a division of the Department of Homeland Security that oversees the NFIP.
“Today, many consumers face loss of their property due to the increases," State Insurance Commisioner Mike Chaney said in a news release. "Many of the new flood elevation maps are riddled with errors and consumers must pay for new elevation certificates to prove they are not in a flood zone."
The lawsuit points out that FEMA was required to provide an affordability study with the new act and it failed to do so. The suit asks the federal judge to block the new rate increases until the affordability study has been conducted and analyzed.