On Friday, April 1, numerous changes will affect the NFIP, impacting many businesses, homeowners and independent agents and brokers that sell and service flood policies.
In an effort to strengthen the NFIP and provide fiscal soundness to the program, Congress passed Biggert-Waters and, subsequently, the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA). On Friday, April 1, HFIAA-imposed changes to the NFIP will take effect for any individual who has a flood insurance policy. According to FEMA, the upcoming changes include adjusting premium increases, issuing new rates, updating maps, supporting mitigation and enhancing program advocacy.
In its summary of program changes, FEMA states that the maximum individual rate increase for any individual policy is 18% with a few exceptions. Individual premiums will vary based on factors such as flood zone, year built (pre-FIRM vs. post-FIRM) and property type. FEMA’s guidance also states that premiums—including the Reserve Fund Account but excluding the Federal Policy Fee and the HFIAA surcharge—will increase an average of 9% for policies written or renewed on or after April 1, 2016. Pre-FIRM nonresidential business policies will see a 25% annual premium increase with an average annual premium rate increase of at least 5%. The average annual premium rate increases for all other risk classes are limited to 15%.
The upcoming changes also include a new rating methodology for both Preferred Risk Policies and properties newly mapped into a Special Flood Hazard Area. Also significant is the elimination of subsidies for certain pre-FIRM policies that lapse and are reinstated past 90 days. If the policyholder wants to return to the program after the lapse, they must obtain an elevation certificate and use the full rate. The $25 surcharge for single-family primary residences and the $250 surcharge for all other policies remain unchanged.
HFIAA also requires FEMA to clearly communicate full flood risk determinations to individual property owners, regardless of whether their premium rates are full-risk rates. To achieve this, FEMA requires NFIP insurers to report current flood zone and current rate map information for all new business polices effective on or after April 1, 2016 and for all renewals effective on or after Oct. 1, 2016.
Finally, the guidance from FEMA includes changes to reformation of coverage. If a rating error is discovered after a loss, the correct premium will be calculated for the entire current policy. If that premium is paid within 30 days, coverage remains the same. If not paid, coverage is reduced.
FloodSmart recently held a series of webinars detailing HFIAA’s mandated changes. A complete summary of the NFIP changes is available.
For tips on addressing these changes with your flood insurance clients, keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter.
Jen McPhillips is Big “I” assistant vice president of federal government affairs.