Some City Residents May See Rise in Flood Insurance Premiums

Flooding – whether on the coast or along rivers and streams – has always been a serious risk in Texas cities. Because of federal budget cuts and increasing costs, Congress recently began making significant changes to the federal laws dealing with insuring against flood losses. Those changes may negatively affect city residents in flood-prone areas, and possibly affect cities themselves.

In 1968, Congress established the National Flood Insurance Program (NFIP) to enable property owners to purchase flood insurance if their community adopted floodplain management ordinances and minimum standards for new construction.  Owners of existing homes and businesses did not have to rebuild to the higher standards, and many received subsidized rates that did not reflect their true risk. 

In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act (Act).  The Act extended the NFIP for five years, but it also made significant reforms.   Many of the changes are supposed to make the NFIP more financially stable and ensure that flood insurance rates “more accurately reflect the real risk of flooding.” 

The changes to all major components of the program, which include flood insurance, flood hazard mapping, grants, and the management of flood plains, will be phased in over time.  The changes will mean premium rate increases for some, but not all, policyholders.

Prior to the implementation of the Act, many structures were allowed to keep their original flood-risk rating.  This generally occurred when:

  1. The structure was built prior to 1975 or before the community received its first Flood Insurance Rate Map (FIRM).  Unless the owner opted out, these buildings often been insured at Pre-FIRM rates; or
  2. The structure was built post-FIRM, in compliance with a FIRM, but a more recent FIRM shows the structure to be at greater risk of flooding.  (These buildings have been grandfathered administratively and were allowed to retain the rate-class that applied at the time of construction.)

What does all of the above mean for residents of flood-prone areas of your city?  In short, it means that their flood insurance premiums could skyrocket. 

The Act requires premium rate adjustment on any property located in an NFIP-participating area to accurately reflect current risk of flooding to that property.  The determination is made after the effective date of any revised or updated flood insurance rate map.  Any increase in the risk premium will be phased in over a five-year period at a rate of 20 percent increase in the premium amount.  For property located in an area not previously designated as a special flood hazard and that become designated as such an area, the premium rate will be phased in over a five-year period at a rate of 20 percent, but the increases begins after the effective date of the remapping.  

Federally-subsidized insurance rates will also be phased out for all of the following properties (except Pre-FIRM primary residences that have not lost their qualification for the rate):

  • any residential property that is not the primary residence of an individual;
  • any severe repetitive loss property;
  • any property that has incurred flood-related damages that cumulatively exceed the fair market value of the property;
  • any business property;
  • any property that, after the effective date of the Biggert-Waters Act, has incurred substantial damage or has experienced “substantial improvement exceeding 30 percent of the fair market value of the property”;
  • any new policy or lapsed policy, or any policy for a newly-purchased property;
  • any policy for which the owner has refused a Federal Emergency Management Agency mitigation offer; or
  • a repetitive loss property or severe repetitive loss property (defined as property sustaining four or more claims payments of over $5,000 or two claims that exceed the value of the property).

The large financial burden comes from the fact that rates are allowed to increase by 25 percent per year until actuarial (i.e., non-federally-subsidized) rates are achieved.  While the changes made to the NFIP are touted as better aligning the premium structure with the true costs of flooding, the changes may drastically affect property owners who may not be able to afford the higher premiums for flood insurance.  And that – depending on the city – may have an effect on real estate markets, property appraisals, banks and mortgage companies, and future development.

Due to grave concerns over its many cities in flood zones because of their proximity to the hurricane-prone coast, the Louisiana Municipal Association has taken the lead in urging congress to at least delay implementation of the Act. 

Texas city officials with concerns should contact their congressional delegation to voice support of H.R. 2199, known as the Flood Insurance Implementation Reform Act of 2013, by Rep. Cedric Richmond (D – Louisiana).   The bill would, among other things, delay the implementation of the premium increases to consumers.

Please contact Monty Wynn, TML’s assistant director of legislative services, at 512-231-7400 or with questions.


TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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