Legislation

April 1, 2017 NFIP changes comply with the requirements of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and Homeowners Flood Insurance Affordability Act of 2014 (HFIAA). The changes bring further premium increases and rating clarifications on properties newly mapped into the Special Flood Hazard Area (SFHA), as well as Pre-FIRM substantially improved buildings.

Increase to Premiums and Surcharges

Beginning April 1, 2017, premiums will increase from an estimated average of $827 per policy to $878, for an average increase of 6.3%, according to FEMA. These amounts do not include the HFIAA surcharge or the Federal Policy Fee (FPF). When the HFIAA surcharge and FPF are included, the total amount billed the policyholder will increase from $953 to $1,005, for an average increase of 5.4%. Annual premium rate increases for some classes of policies are as follows:

• Premium rates for four categories of Pre-FIRM subsidized policies – non-primary residential properties, business properties, Severe Repetitive Loss (SRL) properties (which includes cumulatively damaged properties), and substantially damaged/substantially improved properties must be increased 25% annually until they reach full-risk rates;
• The average annual premium rate increases for all other risk classes are limited to 15% while the individual premium rate increase for any individual policy is simultaneously limited to 18%;
• The average annual premium rate increase for all other Pre-FIRM subsidized policies not covered by the first bullet above must be at least 5%.

Updated Multiplier Tables for Properties Newly Mapped into the SFHA

For calculating the premiums for properties Newly Mapped into the SFHA through December 2018, the PRP multipliers are tied to the date the property was newly mapped into the SFHA and the date of renewal. For the first year, these properties receive a PRP rate, while their subsequent premiums increase to full risk rates over time by using the PRP multiplier.

Rating Clarifications for Pre-FIRM Substantially Improved Buildings

According to FEMA Bulletin Summary, policies on substantially improved buildings must be rated based on the FIRM in effect at the time of reconstruction. Once the building has been substantially improved, all subsequent losses on that building will be adjusted based on the coverage limitations that apply for Post-FIRM buildings in SFHA.

Click here to read FEMA’s Entire Memorandum (.pdf).

Contact us today to find out how April 1, 2017 NFIP changes will affect your clients and to learn how we can help you find more favorable Private Market Flood Insurance alternatives for your clients.

While at first glance, April 1, 2016 NFIP changes appear to be minor, they are significant enough for you to take note of them. Upcoming changes bring premium and fee increases, a new rating methodology for both Preferred Risk Policies (PRPs) and Property Newly Mapped Into the SFHA Policies, as well as new communication procedures.

Increase to Premiums and Fees

Beginning April 1, 2016, the total average premium increase for all NFIP policies will be 9%. The actual increase for any individual policy may be higher, based on a number of underwriting criteria. Also, the premium increase percentages do not include the Federal Policy Fee or the new $250 Congressionally-mandated HIFAA surcharge, which are not considered premium and are not subject to the premium rate cap limitations. Premium rate increases for some classes of policies are as follows:

• 25% – Pre-FIRM – All A and V zones – Non-Residential Business Properties, Non-Primary Residences, Severe Repetitive Loss Properties and Substantially Improved Properties.
• 13% – Post-FIRM – Unnumbered A zones – All occupancy types.
• 10% – Post-FIRM – All V zones – All occupancy types.
• 9% – Post-FIRM – A1-A30, AE zones – All occupancy types.

The Reserve Fund Assessment (RFA) will be increasing for the Preferred Risk Policies (PRP) and the Federal Policy Fee (FPF) will be increasing for all policy types.

Revised Rating Methodology For Preferred Risk Policies (PRP) and Property Newly Mapped Into the SFHA Policies

Prior to the Homeowners Flood Insurance Affordability Act (HFIAA), PRP were written on properties located outside of the SFHA and on properties newly mapped into the SFHA. On April 1, 2015, in accordance with HFIAA, all NFIP carriers were required to use a new class of NFIP policies, called Property Newly Mapped Into the SFHA, for all new and renewal policies on properties that were newly mapped into the SFHA.

On April 1, 2016, all NFIP carriers will use a new rating methodology for both of these classes of NFIP policies. The new methodology will utilize base premium rates and a multiplier to calculate premium for each renewal on or after April 1, 2017. While base premium rates on PRP will increase each year, the multiplier will remain 1.0 for subsequent renewals. Base premium rates for Property Newly Mapped Into the SFHA policies will increase each year, plus the multiplier will increase beginning April 1, 2017, based on the year in which the property was newly mapped into the SFHA. This enables NFIP to increase rates for policies for Property Newly Mapped Into the SFHA more than PRPs.

The declarations pages for these two classes of policies will also display more premium information.

Elimination of Subsidy for Certain Pre-FIRM Policies That Lapse and Are Reinstated

Effective April 1, 2016, FEMA will prohibit the use of Pre-FIRM subsidized rates for policies reinstating coverage for Pre-FIRM buildings that were previously insured by the NFIP where the NFIP coverage is reinstated by means of a payment received more than 90 days after expiration or cancellation of the policy.

Initial Implementation of Clear Communications

HFIAA requires that FEMA clearly communicate to the policyholder their full flood risk, regardless of whether their premium rates are full-risk rates. NFIP insurers will have to report current flood zone and current FIRM information including BFE, if applicable, for all new business policies effective on or after April 1, 2016, and for all renewals effective on or after October 1, 2016.

Time to Look for Private Market Alternatives to the NFIP

The Biggert-Waters Act of 2012 calls for private insurers to enter the flood marketplace to provide alternatives to NFIP insurance. Rapidly increasing NFIP rates encourage insurance agents to look for flood insurance alternatives in the private market.

Download FEMA’s Bulletin on the NFIP Program Changes Effective April 1, 2016 (.pdf)

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