Biggert-Waters Flood Insurance Report Act of 2012 “What we know today, March 15, 2013” On July 6, 2012, the Bigger-Waters Flood Insurance Reform Act of 2012 was signed into law which, among, other provisions, reauthorized the National Flood Insurance Program (NFIP) for 5 years (through September 30, 2017). Below is what sections of the bill will be enacted on:
OCTOBER 1, 2013: SECTION 100205: This Section of the bill phases out subsidized rates (Pre-FIRM rates) for certain properties located in Special Flood Hazard Areas (Flood Zones A, AE, A1-A30, AO, AH, V, VE, and V1V30) and Flood Zone D. These properties previously received subsidized premium rates because they were built on or before December 31, 1974, or before the initial flood maps were published for their communities. •
NEW BUSINESS: The NFIP will no longer provide any extension of rate subsidy to the following properties/policies, which will be subject to full-risk rating. Properties located in Zones A, AE, A1A30, AO, AH, V, VE or V1-V30 will need an Elevation Certificate (EC), including photographs, to allow full risk rating; Provisional or Tentative rates may be used for 1 year only until an EC is provided. Properties located in Zone D will be subject to the Post-FIRM D rates but will not be subject to use an EC: Any newly purchased policy with an effective date on or after July 6, 2012. This does not include rollovers/transfers from one WYO to another WYO. Any policy that was assigned or transferred to a new owner (named insured) on or after July 6, 2012. This does not apply to transfers or assignments to an estate or trust. Any policy that has had a lapse in coverage (payment is made after the 30-day grace period following the policy’s expiration date) with a reinstated coverage that became effective on or after October 4, 2012. Note: policyholders should be aware that this also applies even if their payment is made through their lender (escrowed). Frequently Asked Questions: • • • •
Grandfathering Allowed? No Does this apply to ALL Pre-FIRM buildings? No, only those that are rated Pre-FIRM and located in a SFHA as Pre-FIRM buildings already being rated with an EC are rated with Post-FIRM rates (actuarial rates). What about PRP, PRP Eligibility Extension or Standard Rated B, C & X zones? B, C and X zones do not use an EC for rating and therefore, the above does not apply. Will Residential Condominium Building Association Policy be affected by this? Yes, ALL occupancy types (single family, 2-4 family, other residential and non-residential buildings) that are Pre-FIRM rated and located in a SFHA are subject to the above.
As we know on 3/15/2013
RENEWALS: The properties below that that were issued prior to July 6, 2012 and have had continuous coverage (no lapses), rated Pre-FIRM located in Special Flood Hazard Areas (A, AE, A1-A30, AO, AH, V, VE and V1-V30) and Zone D will experience a premium rate increase up to 25% annually until their average risk premium rate is equal to the average of the risk premium rates for actuarially rated policies: Non-residential occupancy policies. Any severe repetitive loss properties consisting of 1 to 4 residences. Any property that has incurred flood related damage in which the cumulative amounts of NFIP flood insurance claim payments equaled or exceeded the fair market value of the property. Frequently Asked Questions: •
Grandfathering Allowed: NFIP requires that all Pre-FIRM buildings are required to use the flood zone that was in effect at the time the flood policy was initially purchased. So, as long as they do not have a lapse or the policy was assigned to a new owner prior to July 6, 2012 (continuous coverage) they can keep the flood zone. However, Section 100207 of this flood bill may change this rule (see Year 2014 changes). Does this apply to ALL Pre-FIRM buildings? No, only those that are rated Pre-FIRM and located in a SFHA. Will the 25% rate increase stop after 4 years? It may, it may not. The law states that the increase must continue each year until they reach actuarially rates. Since rates are subject to increase each year it is difficult at this time to know when the policy(s) will reach their actuarial rates. What is a severe repetitive property? It is any NFIP-insured 1-4 family dwelling that has met at least 1 of the following paid flood loss criteria since 1978, regardless of ownership: o o
4 or more separate claim payments of more than $5,000 each (including building and contents payments); or 2 or more separate claim payments (building payments only) where the total of the payments exceeds the current value of the property.
In either case, 2 of the claim payments must have occurred within 10 years of each other. Multiple losses at the same location within 10 days of each other are counted as 1 loss, with the payment amounts added together.
The loss history includes all ownership of the property since 1978 or since the building’s construction date if built after 1978. Will Residential Condominium Building Association Policy be affected by this? Only if they meet the loss history requirement for a severe repetitive loss property or have had cumulative amounts of NFIP flood insurance payments that equaled or exceeded the fair market value of the property.
As we know on 3/15/2013
NEW and RENEWAL: If any prospective insured refuses to accept any offer for mitigation assistance (after a flood loss), by the Administrator after October 1, 2013: If the prospective insured refuses the offer to mitigate on or after October 1, 2013, the policy will be subject to full-risk premium rates for new business or renewals effective on or after October 1, 2013. Full-risk premium rates must also be applied to renewals if a mitigation offer was refused on or after October 1, 2013. If the prospective insured refused the offer to mitigate prior to October 1, 2013 then the provisions of the Flood Insurance Reform Act of 2004 apply, which increased premium rates by 150% for severe repetitive loss properties in cases of refusal to mitigate.
ANNUAL CAP ON PREMIUM INCREASES: The cap on premium increase (by class) will increase from 10% to 20% per year. This is not applicable to the total amount of premium paid, but to the rates themselves.
Important Information – Installment Premium Payments will NOT BE available October 1, 2013. Although Section 100205 calls for the availability of making installment payments to those policyholders that are not required to escrow their premiums, this cannot be implemented as quickly as, by law, this would require “rule making” and could take 2 or more years to implement.
SECTION 100212: This Section of the bill requires FEMA to build up a reserve fund to help meet expected future claims or other NFIP obligations. There will be an additional 5% “reserve fund fee” added to all (Pre & Post FIRM) Standard Rated policies. This applies to all new and renewal policies with the exception of the PRP or the PRP Eligibility Extension policies.
PROPOSED CHANGES FOR 2014 SECTION 100207: This Section of the bill requires FEMA to adjust the rating for all policies when there has been a map revision or map change to the FIRM to accurately reflect the current risk of flood. Any increase to the premium will be phased in over a 5-year period at the rate of 20% each year. Those policies that were located in a non-SFHA and due to the map revision or map change are now located in a SFHA , the chargeable risk premium rate will be phased in over 5-year period at a rate of 20% following the effective date of the remapping. **This is the elimination of Grandfathering based on new and renewal policies with map revisions or map changes.**
OTHER SECTIONS MOST ASKED ABOUT – NO TIMELINE NOW SECTION 100204: Multi-Family Properties (increasing building and contents limits) SECTION 100210: Deductible Limits
As we know on 3/15/2013