Recent legislative changes to the NFIP create new requirements and options you need to understand before writing a flood insurance policy and speaking with your clients about their flood insurance needs.

The changes are designed to create a more financially stable NFIP, and some policyholders will pay higher premiums as a result. Here’s what you need to know:

Older Building Rates

Policyholders in high-risk areas, known as Special Flood Hazard Areas (SFHAs), whose homes and businesses were built before the community’s first Flood Insurance Rate Map became effective (also known as pre-FIRM properties), likely qualify for subsidized rates. But due to both Biggert-Waters and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), the subsidies will eventually be eliminated.

In most but not all cases, HFIAA has slowed the elimination of subsidized rates established by Biggert-Waters. Under Biggert-Waters, subsidized rates ended at the time of sale. A significant change resulting from HFIAA is that subsidized rates will still be available to the new owner of a pre-FIRM building in an SFHA, which means that the current owner can transfer the policy and rates to the new owner.

FEMA will gradually phase out subsidies as follows:

• Subsidized rates for pre-FIRM primary residences in SFHAs will increase by 18% a year until reaching full-risk rates.
• Pre-FIRM subsidized rates for non-primary residences in SFHAs (and Zone D) will increase by 25% each year until reaching full-risk rates.
• Pre-FIRM subsidized rates for business properties will increase by 25% each year until reaching full-risk rates, starting as soon as FEMA can distinguish businesses from other properties currently grouped as non-residential. Until then, pre-FIRM non-residential properties, including businesses, will increase by approximately 18%each year.
• All other pre-FIRM subsidized rates will increase by no more than 18% each year.

New Policy Surcharge

To offset the loss in revenue to the NFIP caused by slowdown in the elimination of subsidized rates, HFIAA calls for a new surcharge on all policies to build a Reserve Fund that covers future claims. Starting April 1, all policies for primary residences—those occupied by the policyholder for 50% of the policy year—will include a $25 surcharge. Policies for all other buildings will include a $250 surcharge.

In order to apply the correct surcharge to your client’s policy, you must verify the building's use before writing or renewing the policy. Essentially, you need to know if your client’s property is their primary residence. If you cannot confirm that a building is a primary residence, you must apply the $250 surcharge.

This surcharge will apply annually until there are no more subsidized rates in the program.

Rate Changes for Map Updates

HFIAA repeals a provision in Biggert-Waters that called for a five-year phase-in of the new full-risk rate when maps changed. As a result, grandfathering remains a viable rating option when new flood maps become effective and the risk is found to be higher (for example, a property mapped from Zone A to Zone V, higher Base Flood Elevation).

HFIAA also revises the rating option for properties newly mapped into an SFHA (for example, Zone X to Zones A or V). Starting April 1, the Preferred Risk Policy (PRP) Eligibility Extension will be replaced by the Newly Mapped procedure. Eligible properties newly mapped as an SFHA can be rated with the lower-cost PRP rates for the first 12 months after the new flood map becomes effective. For each subsequent renewal, rates will not increase more than 18%.

Want more detail? Check out the April 1, 2015, Program Changes Write Your Own (WYO) Company Bulletin.

Staying Up to Date

Most changes due to the legislation that affect flood insurance are in place or will be active by April 1. WYO Bulletins will provide details and resources to help you understand the changes and ensure that your clients remain financially covered for flood damage. Additional materials are also available online to assist you and your clients. Be sure to check back frequently for updates and new information.

For assistance in talking about flood risk, flood insurance, impacts of new maps and other agent tools and resources, including the NFIP’s marketing and education campaign’s FloodSmart Agent Referral Program, visit FloodSmart online.

FloodSmart is the official website of the NFIP.