Important Flood Insurance Changes
According to OCAR Affiliate Ryan Ramirez, flood insurance is changing and changing in a big way.
REALTORS® are advised when showing or listing new property to order a flood determination report from their preferred lender or insurance agent to find out what flood insurance zone a property lies in so they can ascertain all costs associated with the transaction before entering into escrow.
Home owners must pay upfront to obtain flood insurance and requisite certificate says Aaron Rosen, another OCAR Affiliate member. In general, Rosen explains that if it’s an FHA-insured mortgage or government loan, the FEMA flood insurance policy is what is needed. Private insurance will not be accepted.
The Biggert-Waters Flood Insurance Reform Act of 2012 was passed by Congress and signed by the president in 2012. The changes of this act were designed to make the National Flood Insurance Program (NFIP) more financially stable.
As a result of the passing of this act, homeowners and business owners will see a substantial rate increase across, particularly in high risk zones such as flood zone A & B. In addition to the rate increase, homes in flood zone A & B built before 1975 will be required to purchase an elevation certificate before binding coverage.
There are a number of additional changes and provisions that have been implemented as well:
April 2015 changes to the National Flood Insurance Program (NFIP) are results of the Homeowner Flood Insurance Affordability Act (HFIAA) and the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters).
1. Implementation of the first annual rate change that sets rates using rate increase limitations set by HFIAA, for individual premiums and rate classes:
- Limiting premium increases for individual premiums to 18 percent premium
- Limiting average increases for rate/risk classes to 15 percent
- Mandatory increases for certain subsidized policyholders under Biggert-Waters and HFIAA
2. Increasing the Reserve Fund assessments required by Biggert-Waters
- The Reserve Fund Assessment will increase to 15 percent for all policies except Preferred Risk Policies (PRPs)
- The Reserve Fund Assessment for PRPs will be 10 percent
- In order to comply with the 15 percent limitation on average annual increases, increases to the Reserve Fund Assessment must be phased in over time
3. Implementation of the annual surcharges required by HFIAA
- $25 for policies on primary residences or $250 for all other policies
This congress-mandated surcharge, the probation surcharge, and the Federal Policy Fee (FPF) are not considered premiums and, therefore, are not subject to the premium rate increase limitations.
- This fee is in addition to the premium
4. Guidance on substantially damaged and substantially improved structures and additional rating guidance on Pre-Flood Insurance Rate Map (FIRM) structures
- Policies for these structures will receive a 25 percent annual premium rate increase until they reach full-risk rating
5. Implementation of a new procedure for Properties Newly Mapped into the Special Flood Hazard Area and existing Preferred Risk Policy Eligibility Extension (PRP EE) policies
- The premiums will be the same as the Preferred Risk Policy for the first year (calculated before fees and assessments) to comply with provisions of HFIAA, after which they will transition to full-risk rates through average premium increases of 15 percent but not exceeding 18 percent per policy
- The appropriate HFIAA Surcharge must be added for each policy
6. Federal Policy Fee (FPF):
- Remains $22 for PRPs
- Increases to $45 for all other policies except RCBAPs
- FPF also applies to those policies previously rated under the PRP EE (now rated under Properties Newly Mapped into the SFHA), as well as policies effective on or after April 1, 2015, covering properties that were newly mapped into the SFHA by a map revision that became effective on or after March 21, 2014
RCBAP (Residential Condominium Building Association Policies):
- 1 unit $45 per policy
- 2-4 units $135 per policy
- 5-10 units $360 per policy
- 11-20 units $720 per policy
- 21 or more units $1,800 per policy
7. New deductible options:
Increased optional deductible of $10,000 for residential properties (created to help reduce premiums as a result of HFIAA)
New minimum deductibles for PRP and MPPP policies will be $1,000 for both building and contents if the building coverage is less than or equal to $100,000 and $1,250 if building coverage is over $100,000, regardless of the insured building’s construction date compared to the initial FIRM date. PRP and MPPP contents-only policies will have a $1,000 minimum deductible
Click here to read a detailed summary of April 1, 2015 changes. For specific questions about coverage, it may be best to contact your insurance agent.
FEMA has put together a series of short videos to help explain these changes, which may be viewed here.