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April 1, 2015

Changes to FEMA Flood Insurance Programs

A recent copy of the “Insurance Journal” had an article that discusses changes to the FEMA Flood Insurance Program effective April 1, 2015.

“Starting today, when flood insurance policyholders go to renew their policies, they could be quoted premium increases ranging from 15 to 18 percent on average if their home is their primary residence and up to 25 percent if it is a secondary home or a home that has suffered repetitive losses.

They will also face new surcharges, $25 for primary homes and $250 for all others including secondary or multi-families.

The changes result from the implementation of the Homeowner Flood Insurance Affordability Act (HFIAA) passed by Congress in 2014 and the continued implementation of its predecessor reform law, Biggert-Waters 2012 legislation (BW-12).

In passing HFIAA, Congress rolled back price hikes called for under Biggert-Waters after coastal property owners, state lawmakers and real estate interests complained.

Meanwhile there has been some interest in encouraging private insurers to write more flood insurance.

Congress hopes the higher premiums will help pay down some of the $24 billion of debt incurred by the National Flood Insurance Program (NFIP) due to catastrophe claims from Katrina to Superstorm Sandy.

Congress also hopes to gradually reduce the number of NFIP policies that receive premium subsidies by increasing those premiums 25 percent a year until they reflect the true risk.

There are new procedures for properties that have been newly mapped into the Special Flood Hazard Area and existing Preferred Risk Policy Eligibility Extension policies. There are also changes in how subsidized structures that have been substantially improved are rated.

In addition to premium changes and surcharges, the new law introduces other options:

  • A new $10,000 deductible is now available for residential properties. If an insured selects this $10,000 option and wants to buy both contents and building, then the same amount must apply to both building and contents coverage, $10,000 building coverage deductible then $10,000 contents deductible. Insurers will be required to inform applicants of the availability of the new $10,000 deductible
  • New minimum deductibles for Preferred Risk Policies and the Mortgage Portfolio Protection Program policies will be $1,000 for both building and contents if the building coverage is less than or equal to $100,000. If building coverage is greater than $100,000, the new minimum deductible will be $1,250. The Preferred Risk and the Mortgage Portfolio Protection Program Policies their contents-only policies will have a $1,000 minimum deductible.
  • A “primary residence” is one that will be lived in by the insured or his or her spouse for more than 50 percent of the 365 days following the policy effective date. The insurer must now validate primary residence eligibility before applying the $25 surcharge. To validate, an insurance agent must submit one of these: a driver’s license, an automobile registration, proof of insurance for a vehicle, voter’s registration, documents showing where their children attend school, or a Homestead Tax Credit Form for Primary Residence. Or if none of those documents are available then the agent must submit a signed and dated statement.

The Federal Emergency Management Agency (FEMA), which manages the NFIP, has had mixed success implementing other changes mandated by the recent reform laws including rebates and more accurate and open mapping procedures, according to a recent government report. One of the requirements, a FEMA-sponsored study of affordability of flood insurance, was just released yesterday by the National Academy of Science.

FEMA has published a fact sheet on the changes taking place April 1 and produced the following four videos for agents that explain the law and the premium increases, surcharges, deductibles, and fees.”

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