Changes Coming to the
National Flood Insurance
Program – What to Expect
Biggert-Waters Flood Insurance
Reform Act of 2012 (BW12)
In 2012, Congress passed legislation which will dramatically
change parts of the National Flood Insurance Program
• Changes to make the program more financially stable
• Changes which require the NFIP to raise rates to reflect true flood risk
• Changes for property owners affected by map updates
There are two core changes to the previous program design
• Reduced insurance rates to encourage flood insurance purchase for older high risk buildings are sunset
Biggest Changes Are Insurance
There are many far-reaching mapping provisions in BW12
They are generally going to be implemented gradually in
coordination with the Technical Mapping Advisory Council
Funding will limit how quickly they can be implemented
Rulemaking, and the associated extended timelines, will also be
a factor
In Region 8, the only property owners affected are those
pre-FIRM structures
located in any A zone
Actuarially rating for these structures will now require an
Major Provisions Affecting Risk MAP
Authorizes mapping program (216);
Establishes Technical Mapping Advisory Council (215);
Creates annual budget cross-cut report, and requires interagency
coordination (220, 221);
Expands statutory appeals definition, allows for appeals expenses
reimbursement and codifies scientific resolution panel (217, 218,
246); and
Creates flood protection structure task force, new insurance
Major Insurance Impacts
Pre-BW12 – 2 keys ways that rates don’t reflect risk
• Pre-FIRM rates –reduced premium (compared to full risk rate) designed to encourage purchase of insurance where it was likely to be difficult to afford. Written into the NFIA.
• Pre-FIRM is a “Taxpayer” subsidy – i.e. the rate structure of the insurance
program is not designed to produce revenue to compensate for this discount.
• Grandfathering rates – premium based on risk shown on superseded flood map. Can be where flood risk zone changed, or where BFEs increased.
• Grandfathering is a cross-subsidy where overall premiums are set for the risk class as a whole to pay for expected losses. Grandfathered policies are deliberately paying less than full risk rate. Extra premium is spread over other policies in the risk class
BW12 Eliminates many pre-FIRM subsidies near-term and
sunsets the rest at the sale of property
What is Changing?
Flood insurance rates
Rates for all properties will more accurately reflect risk
Subsidized rates for non-primary residences are being phased out now
Other subsidized rates will be eliminated over time, beginning late 2013
• Purchase or sale of a pre-FIRM property, or allowing a policy to lapse, could trigger rate changes beginning in 2013
• Beginning in 2014, when new community flood maps show that a property’s flood risk has increased, premiums could also increase – in some cases significantly. But those changes will be phased in
• Only 19% of current policyholders will be affected by the B-W 12 Section 205 revisions
-Only 5% will see the immediate 25% annual premium increase
-Only10% of all policies cover subsidized primary residences which will remain subsidized unless or until:
-The property is sold or the policy lapses for any reason
-The remaining 4% includes subsidized condos & non-condo multifamily
Changes for Pre-FIRM Non-Primary
Residences
Rates will increase up to 25 percent per year until they reflect
the full-risk rate
Changes become effective January 1, 2013, or at policy renewal
Pre-FIRM:
Built before the community’s first Flood Insurance Rate Map became effective and not substantially damaged or improved since then
Non-primary residence:
Changes to Other Subsidized Rates
Premiums for pre-FIRM commercial buildings
Increase by up to 25 percent per year until they reach full-risk rates
Premiums for repetitively
flooded buildings
These Severe Repetitive Loss
properties of one to four residences will receive a premium increase of
up to 25 percent per year until reaching full-risk rates
Includes buildings with cumulative flood insurance payments that meet or exceed fair market value
Direct Move to Full-Risk Rates
After the sale/purchase of a property
Subsidized rates no longer can be assigned to the new owner
After a policy lapse
Allowing a policy to lapse could be costly
When a new policy is issued
Policies for buildings uninsured as of the date that the law was passed (July 6, 2012)
These changes also are slated
Who Won’t Be Affected?
Owners of pre-FIRM primary residences in SFHAs will be able to
keep their subsidized rates
unless or until:
• You sell your property
• If your policy lapses
• If you suffer a severe loss
• If you have suffered repeated flood-related losses
• If you purchase a new policy
• If you have refused an offer to mitigate flood losses to your property
What about when a new flood map
is adopted?
If you live in a community which adopts a new, updated Flood
Insurance Rate Map (FIRM)
AND
your property is in the SFHA on
the updated FIRM:
• Grandfathering will be phased out.
The Biggert-Waters Act calls for a phase-out of discounts, including grandfathering provisions.
This includes moving to full actuarial rates for properties which are newly mapped in to a Special Flood Hazard Area.
But the pain is lessened somewhat, because new rates will be gradually phased in at 20% per year for five years for properties in the SFHA with an existing flood insurance policy and properties newly mapped into the SFHA.
How Does This Change Our Messages
Grandfathering will go away as a primary solution. FEMA may
still sell grandfathered policies until 2014, but then those
grandfathering discounts will begin phasing out for any maps
updated since July 2012.
Previously we would encourage communities and property
owners to add freeboard to our BFEs for increased safety. Now,
we should caution them that building right at the BFE can have
major cost implications down the road. If the mapped risk
How Can Property Owners Lower Costs?
Home and business owners:
Talk to your insurance agent about your insurance options
You’ll probably need an Elevation Certificate to determine your correct rate
Higher deductibles might lower your premium
Consider remodeling or rebuilding
Building or rebuilding higher will lower your risk and could reduce your premium
Consider adding vents to your foundation or using breakaway walls
Talk with local officials about community-wide mitigation steps
Community leaders:
Consider joining the Community Rating System (CRS) or increasing your CRS activities to lower premiums for residents.
Talk to your state about grants. FEMA issues grants to states which can distribute the funds to communities to help with mitigation and rebuilding.
Biggert-Waters and Rebuilding
Decisions After a Flood
As elevations go up, premiums can drop.
“ZONE A” EXAMPLE
Elevating 3 feet above the BFE
could lower premiums significantly! Homes built below
BFE could be hit hard by an increase
Biggert-Waters and Rebuilding
Decisions After A Flood
Future insurance savings can offset higher construction costs.
“ZONE V” EXAMPLE ( NEW BFE SHOWS 4’ HIGHER RISK)
ELEVATION /COSTS 4 ft 8 ft 10 ft
Foundation $18,000 $29,000 $30,000 Flood Insurance/yr $17,500 $ 7,000 $ 3,500 Mortgage increase + flood/yr $17,500 $ 7,588 $ 4148 Peace of Mind None Some More
Homeowner pockets more than
$13,000/year compared to the
The Bottom Line
Many changes are coming to the Flood Insurance program
Congress acted to make program stronger financially
On many more policies, flood insurance rates will reflect full risk.
Insurance rates will rise on some policies
There are specific actions which will trigger rate changes
Talk to your insurance agent about how changes may affect your
property and flood insurance policy
Building or rebuilding higher can lower your flood risk and could
save you money
FEMA can help communities lower flood risk and flood insurance
premiums through:
CRS program
Various mitigation grants
