SWCS Winter Meeting

Biggert-Waters (BW-12) Flood Insurance Reform Act – Changes and Impacts

March 14, 2014

Joseph Canas, PE, LEED AP, CFM, Project Manager

The National Flood Insurance Program

■ Created in 1968 since private flood insurance was difficult to find

■ Modified in 1973, requiring flood insurance for all mortgages through federally insured lenders

■ 40,000 stream miles mapped nationally

■ Participating communities responsible for enforcement of floodplain management regulations

Coastal Exposure

• Value of coastal floodplain properties insured.

$ 527billion

• Number of jobs in U.S. coastal counties

51million

• Contribution in GDP from U.S. coastal counties

$ 6.6trillion

Coastal Exposure

• Wages paid to employees working in coastal shoreline counties.

$ 2.8 trillion

• Rank in global GDP rank if U.S. coastal counties counted separately.

# 3

• U.S. Population living in coastal counties45%

The Problem?

■ Severity and frequency of disasters has increased in recent years

■ The NFIP is supposed to be self-sufficient, but has had to borrow from the Treasury

■ Existing mapping models only current risk, and not sea level rise

■ Premiums under-represent the risk for many older structures

How Bad is It?

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20120

5000

10000

15000

20000

25000

30000

NFIP Debt ($MM)

Debt ($MM)

Katrina

Sandy

Biggert-Waters Flood Insurance Reform Act of 2012

■ Reauthorizes National Flood Insurance Program for 5 years

■ Existing Subsidies Phased Out

■ Mapping Initiatives

■ Intended to make program more sustainable

Biggert-Waters Flood Insurance Reform Act of 2012

■ Increases penalties for lenders who do not comply with flood insurance purchase requirements– Increases from $ 350 to $ 2,000 per violation

■ Allows for escrow of flood insurance for loans made beginning October 1, 2014

■ Requires FEMA to:– Build up reserve fund of 1% of the

total of all policies– Repay debt within 10 years

Biggert-Waters Flood Insurance Reform Act of 2012

■ Authorizes $400 million annually for mapping

■ Removes restriction that states may only contribute 50 percent of mapping costs

■ Requires lenders disclose availability of flood insurance under NFIP to all borrowers

Changes for Pre-FIRM Structures

Pre-FIRM Structure:

Built before the community’s first Flood Insurance Rate Map (FIRM) became effective, and has not been substantially damaged or improved. The premiums for these structures are subsidized by the NFIP, and do not reflect the full actuarial rate for their risk.

Substantial Damage / Substantial Improvement:

Damage or improvement to a structure totaling 50% or more of the structure’s fair market value

Changes for Pre-FIRM Structures

■ Subsidized rates to be phased out:– Non-primary residences– Business properties– Severe repetitive loss properties (up to 4 family

residences)– Properties where claims payments exceed fair market

value

■ New policies issued at full-risk rates:– After the sale / purchase of a property– After a lapse in coverage– After substantial damage / improvement– Properties uninsured as of October 1, 2012

Phasing Out of Subsidized Rates

■ Rates to increase 25% per year for pre-FIRM buildings until they achieve full risk rate.

■ Non-primary residences– Effective January 1, 2013

■ Non-residential, severe repetitive loss, and payments exceeding FMV– Effective October 1, 2013

Phase-In Example

■ Pre-FIRM structure■ 3 feet below base flood elevation■ Slab-on-grade■ Coverage: $ 200K Building / $ 80K Contents■ Existing Premium = $ 2,964■ Full Risk Premium = $ 7,922

$ 2,968 $ 3,710 $ 5,797 $ 7,246 $ 7,922

Existing Year 1 Year 2 Year 3 Year 4

Direct Move to Full-Risk Rates

■ Sale/purchase of a property after July 5, 2012

■ When a new policy is issued after July 5, 2012

■ After a policy lapse after October 4, 2012

$ 2,968 $ 7,922

Existing Year 1

Non-Renewal Notice

Who Does This Impact?

No immediate subsidy removal: pre-FIRM condos, 5+ family residences (244K)

Retaining subsidies until sold or lapsed: Pre-FIRM primary residences (578K)

25% Phase-In: Non-primary residences, non-residential buildings, SRLPs (253k)

Unsubsidized pre-FIRM policies (4.480 M)

Impacts: New England

Maine

36%policies

impacted

New Hampshire

41%policies

impacted

Vermont

53%policies

impacted

Massachusetts

42%policies

impacted

Rhode Island

42%policies

impacted

Connecticut

45%policies

impacted

Not subsidized

25% Phase –in

Direct Move to Full-Risk

Multi-family, 5+ units

Impacts: Connecticut

Litchfield County

Fairfield County

New Haven County

Middlesex County

New London County

Windham County

Tolland County

Hartford County

46%

43%

39%

44%

45%44%

38%

35%

Grandfathering Eliminated

■ Grandfathering – If an insured property was mapped to a

higher risk zone or elevation, the additional premium was subsidized

■ BW-12 ends Grandfathering– Phase in to full risk rates at 20% a year – Begins late 2014

■ New maps updated coastal hazards, but do not project impacts of sea level rise– Validity of coastal models has been raised,

successfully challenged in Rockport, MA

2010

2013

Effects on Impacted Properties

■ Property values have declined, or will decline steeply

■ Some homes may be unsellable

■ Some property owners will not be able to afford flood insurance required by their lenders

Potential Mitigation Strategies

■ Elevate existing homes

■ Educate homeowners that risk changes over time

■ Obtain grants for FEMA assistance for elevating / relocating

■ Increase deductibles

■ Community participation in CRS

Legislative Changes?

■ Numerous legislative responses have been proposed:– Delay implementation of entire BW-12 legislation pending affordability

study– Extend phase-in period to 10 years– Means-tested voucher program for flood insurance premiums /

relocations

■ HR 3370 (Menendez-Grimm) approved by House on March 5, 2014– Premium increases capped at 18% total– Repeals new policy and property sales triggers– Reinstates grandfathering– Refunds for those who overpaid permiums– Reimbursement of successful appeals

Questions?

Joseph Canas, PE, LEED AP, CFMProject ManagerTighe & Bond1000 Bridgeport AvenueShelton, CT 06484(203) 712-1109jacanas@tighebond.com