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Flood Insurance Rate Uncertainty Has Far-reaching Effects on Real Estate Market

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Uncertainty surrounding drastic increases in flood insurance premiums for coverage under the National Flood Insurance Program is negatively impacting transactions and the nation’s real estate recovery.

Experts from the Federal Emergency Management Agency, which manages the government’s flood insurance program, spoke to REALTORS® earlier this month about the implications of recent changes to the flood program during the “Update on Reforms to the National Flood Insurance Program” forum at the 2013 REALTORS® Conference and Expo.

REALTORS® and homeowners across the country were already reporting significant increases in annual premium rates before NFIP rate changes took effect on October 1; this is raising concerns among consumers and REALTORS® about decreased property values and a stalled housing market recovery.

Ed Connor, FEMA deputy associate administrator, Insurance, Federal Insurance and Mitigation Administration said increased rates were an unavoidable result of several devastating storms.

“The last two major storms, Hurricane Katrina in 2005 and Hurricane Sandy in 2012 were the costliest storms in U.S. history,” Connor said. “Last year, the NFIP was forced to borrow money from Treasury; program debt is now $24 billion dollars.”

Flood insurance rates are dependent on risk levels, property type and location. Under the Biggert-Waters Flood Insurance Reform Act, rate increases for older primary residences go into effect when the policy lapses, the property is sold or a new policy is purchased.

Rates for commercial properties and non-primary residences are increasing by 25 percent per year until premiums reach the full actuarial cost. Changes to flood insurance rate maps in some communities may also affect the timing of increases, and some could go into effect immediately.

“This isn’t going to affect property owners in every state to the same degree,” said Thomas Hayes, FEMA chief actuary, Federal Insurance and Mitigation Administration. “There are going to be some counties that are harder hit than others; it’s going to depend on the location of the property and several other factors.”

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