Flood Insurance Reform: Where are we now?


With the deadline for enrollment into the health care marketplace finally behind us, those in the insurance industry may shift our focus to more controversial legislation. The National Flood Insurance Program (NFIP) was set to see drastic changes due to the Biggert-Waters Act of 2012. Although the law was already being enforced, both the House and Senate were pushing separate bills to amend the law as recently as last month. The House bill was seeking to limit the rate increases to be more gradual with a maximum increase of 15% per year. The Senate bill would have delayed all rate hikes until September 30, 2017. The result of the House and Senate bills was a new law called Flood Insurance Homeowner Affordability Act (FIHAA). This new act was signed into law on March 21, 2014 and amended some of the Biggert-Waters Act of 2012.


The main driver of these amendments to flood insurance came about following Hurricane Katrina which has left the NFIP in debt since 2005. The purpose of the Biggert-Waters Act was to make the flood insurance premiums actuarially sound so that the premium collected is covering the claims paid for losses. In theory, this sounds very reasonable and probably how these policies should have been written since the beginning. However, many NFIP customers have received discounts due to the standards in place at the time their house was built or their policies were written under grandfathered plans that greatly decreased their premium making the rate they are paying far less than an actuarially-sound model would require. However, the actuarially-sound model associated with the Biggert-Waters Act could have increased premiums in high risk areas by 3,000 – 5,000 percent. The FIHAA, which adopted parts of both the House and Senate bills, cannot increase premiums by more than 18% annually, with limited exceptions. However, to help offset some of the lost revenue to the NFIP, there will be a $25 surcharge on all primary residence policies, and a $250 surcharge on all other policies. These fees will be included on all flood insurance policies regardless if they are purchased from the private sector or from the NFIP.

In the past you were required to have flood insurance if any part of your structure, attached or detached, touched the flood zone. However with the new law, you are not required to have flood insurance if you have a detached structure, garage, etc. that is in the flood zone.


Most people are under the impression that the NFIP is the only place to obtain flood insurance. However, several private sector companies are seeking to compete with the NFIP and have launched their own flood insurance products. The Flood Insurance Agency (TFIA) out of Gainesville, Florida, has been one of the early emerging leaders since its launch in November 2013 and is now making their product available in 15 states. Their CEO Evan Hecht stated they are not seeking to ruin the NFIP but keep the program healthy by increasing competition. TFIA is one of at least five private insurers selling flood insurance to homeowners. Increased competition is never a bad thing, which may be one of the reasons legendary investor Warren Buffet’s Berkshire Hathaway is backing some of these private sector policies. However with all of the uncertainty regarding portions of the law, many insurers in the private sector were leery of jumping in with both feet.


Neither the Biggert-Waters Act nor the Homeowner Flood Insurance Affordability Act received near the attention of Health Care Reform. However, if you were one of the individuals facing enormous premium hikes, you were likely watching the flood insurance changes just as closely as most Americans were monitoring Health Care Reform.


For more information on flood insurance, you can contact me or another Insure Forward agent.



Adam Schaan

Insurance Sales Agent

Insure Forward Fargo




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Guest Friday February 12, 2016


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