The Federal Emergency Management Agency (FEMA) is taking strides to strengthen the National Flood Insurance Program (NFIP) through recent legislation, such as the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). These changes are working to make the NFIP actuarially sound by better aligning flood premiums to their level of true risk.
FEMA states that the upcoming changes include adjusting premium increases, issuing new rates, updating maps, supporting mitigation and enhancing program advocacy. Here are the four major highlights of this year’s implemented changes and how they could impact your policy.
1. Premium Increases
Effective April 1, 2016, all pre-FIRM subsidized policies – including non-primary residential properties, business properties, severe repetitive loss (SRL) properties, and substantially damaged/substantially improved properties – will face a 25% premium increase. Premiums will continue to increase by this percentage until they reflect the true flood risk. Keep in mind that this increase is in addition to the $250 surcharge implemented in 2015.
FEMA states that the average annual premium increase for all other risk classes is limited to 15%, while the individual premium increases for any individual policyholder is limited to 18%. Additionally, the average annual premium increase for pre-FIRM subsidized policies is at least 5%.
2. Communication of Risk
Beginning April 1 for new policies and October 1 for renewals, HFIAA requires FEMA to clearly communicate the true flood risk potential for individual property owners. This communication is aimed at helping policyholders understand what the policy is rated under and what the actual risk is for the property. It will also help educate policyholders on what to expect as FEMA implements these changes.
3. Newly Mapped Areas
A new rating procedure will be applied to properties that have been newly mapped into a high-risk Special Flood Hazard Area (SFHA), which will help to reduce the financial impact of the map changes. Starting January 2017, property owners mapped into a SFHA will be able to purchase a Preferred Risk Policy (PRP) and then each year a multiplier will be applied. This is a way to gradually increase flood premiums until they reflect the true risk.
4. Lapsed Policies
Another important change is this year’s elimination of subsidies for pre-FIRM policies that have a coverage lapse or are reinstated. Unless you had a loan and the lender no longer requires flood insurance or if the community was suspended and you couldn’t secure coverage, policies with a lapse of more than 90 days will be required to pay the full-risk rate.
Policyholders with a lapsed policy will then need to obtain an elevation certificate, which can range anywhere from $100 to $1,500. To avoid this, be sure to renew your policy in order to maintain continuous coverage for continued eligibility for grandfathering and/or subsidized rates.
If you have questions or concerns about how these changes will impact your flood insurance policy, contact McGrath Insurance Group at 508-347-6850 or visit www.mcgrathinsurance.com.
*This article is written for informational purposes only and should not be construed as providing legal advice.