IA Magazine

The Federal Emergency Management Agency yesterday announced its plan to implement key provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (FIRA) in a special notice to Write-Your-Own companies and agents.

Beginning Aug. 1, 2013, FEMA plans to phase out subsidies to any severe repetitive loss property, any property that has incurred flood-related damage in which the cumulative amounts of NFIP claim payments equaled or exceed the fair market value of the property, and any business property.

Each of these properties will have their subsidies phased out by having their premium rates increased by 25% annually until their average risk premium is equal to the average of the risk premiums for actuarially rated policies.

Additionally, FEMA will no longer provide a rate subsidy to any property not insured by the NFIP as of the date of enactment of FIRA, any property purchased after the date of enactment and any policy under the NFIP that has lapsed in coverage as a result of the deliberate choice of the policyholder. Each of these properties will be immediately subject to full-risk rating.

FEMA also announced that further details for Sec. 100207 of FIRA, dealing with premium adjustment for remapped properties, will be forthcoming. It expects an August 2014 implementation date for this provision.

FEMA has also announced its plans to implement Section 2 of H.R. 5740 (passed prior to FIRA), which would phase-out subsidies for non-primary residences. This phase-out, also conducted by having premium rates increased by 25% annually until full rates are achieved, will begin Jan. 1, 2013, for all new and renewal policies.

FEMA has defined “non-primary residences” as a building that will not be lived in by the insured or the insured’s spouse for at least 80% of the 365 days following the policy effective date.

FEMA will require a new “NFIP Non-Principal/Non-Primary Residence Policyholder Notice.” This new notice must be included with renewal notices for the first renewal of pre-Flood Insurance Rate Map policies effective on or after March 1, 2013, for which the policy records indicate that the insured property address is not the principal/primary residence. This full notice and the accompanying bulletin were also released to the public.

In the coming weeks, FEMA is expected to release further information on properties that may be automatically classified as “non-principal/non-primary residences” before the March 1 renewal and the new “NFIP Non-Principal/Non-Primary Residence Policyholder Notice.”

To help explain these changes to your clients, use the new Build Back Safer and Stronger brochure developed by FEMA as a result of Superstorm Sandy. FEMA has set up a new resource center for Superstorm Sandy and changes due to BW 2012.

The phase-out of many subsidized properties in the NFIP was the result of lengthy negotiations over reauthorizing the program. The only properties to be affected by this phase-out of subsidies are those properties listed above that are pre-FIRM properties receiving explicit subsidies to their NFIP rates. A pre-FIRM property is a building for which construction or substantial improvement occurred on or before Dec. 31, 1974, or before the effective date of an initial FIRM.

To check dates of your community’s initial FIRM, refer to the Community Status Book.

Previous NFIP bulletins on FIRA implementation and Sandy issues are also available on the FEMA website.

The Big “I” expects further bulletins and guidance from FEMA on implementation of FIRA, and there could be amendments made to the existing bulletins. Please look to upcoming editions of IN&V for any new updates.