FLOOD - THE WATER IS RISING AND SO ARE THE RATES! SPONSORED BY

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1 FLOOD - THE WATER IS RISING AND SO ARE THE RATES! SPONSORED BY

2 Flood Insurance The Water is Rising & So Are the Rates!!! Michael C. D Orlando, CIC, LIA, CPIA Insurance Training & Consulting Services 11 Lake Shore Drive Amesbury, MA mcdorlando@aol.com (978)

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4 Some Flood Talk I. Key Terms, Concepts & Coverage Issues A. Definitions 1. FIRM = Flood Insurance Rate Map 2. Pre-FIRM Pre-FIRM Building. A building for which construction or substantial improvement occurred on or before December 31, 1974, or before the effective date of the initial FIRM for the community in which the building is located, whichever is later. 3. Post-FIRM Post-FIRM Building. A building for which construction or substantial improvement occurred after December 31, 1974, or on or after the effective date of the initial Flood Insurance Rate Map (FIRM), whichever is later. 4. Elevation Certificate Used to determine flood rates in SFHA zones 5. SFHA = Special Flood Hazard Area High risk zone ( 100 year flood ) Zone starts with A or V 6. Non-SFHA Low to moderate risk zones (500 year flood) Zones B, C, X 7. Grandfathered Rates Michael C. D'Orlando, CIC, LIA, CPIA Page 1 Water Rising & So Are the Rates! 11/13

5 B. General Review of NFIP Covered Property & Property Not Covered 1. Dwelling Form Coverage A Building a. Specifies certain items to which Cov. A applies 7. The following items of property which are covered under Coverage A only: a. Awnings and canopies; b. Blinds; c. Built-in dishwashers; d. Built-in microwave ovens; e. Carpet permanently installed over unfinished flooring; f. Central air conditioners; g. Elevator equipment; h. Fire sprinkler systems; i. Walk-in freezers; j. Furnaces and radiators; k. Garbage disposal units; l. Hot water heaters, including solar water heaters; m. Light fixtures; n. Outdoor antennas and aerials fastened to buildings; o. Permanently installed cupboards, bookcases, cabinets, paneling, and wallpaper; p. Plumbing fixtures; q. Pumps and machinery for operating pumps; r. Ranges, cooking stoves, and ovens; s. Refrigerators; and t. Wall mirrors, permanently installed. 1) Includes some items that are not permanently installed/attached 2) Refrigerators, stoves, ovens, freezers 3) For the above items to be purchased must have Coverage A building not Coverage B, Contents Michael C. D'Orlando, CIC, LIA, CPIA Page 2 Water Rising & So Are the Rates! 11/13

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7 b. Building items covered in basement are limited 8. Items of property in a building enclosure below the lowest elevated floor of an elevated post-firm building located in Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a basement, regardless of the zone. Coverage is limited to the following: a. Any of the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: (1) Central air conditioners; (2) Cisterns and the water in them; (3) Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing; (4) Electrical junction and circuit breaker boxes; (5) Electrical outlets and switches; (6) Elevators, dumbwaiters, and related equipment, except for related equipment installed below the base flood elevation after September 30, 1987; (7) Fuel tanks and the fuel in them; (8) Furnaces and hot water heaters; (9) Heat pumps; (10) Nonflammable insulation in a basement; (11) Pumps and tanks used in solar energy systems; (12) Stairways and staircases attached to the building, not separated from it by elevated walkways; (13) Sump pumps; (14) Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system; (15) Well water tanks and pumps; (16) Required utility connections for any item in this list; and (17) Footings, foundations, posts, pilings, piers, or other foundation walls and anchorage systems required to support a building. b. Clean-up. Michael C. D'Orlando, CIC, LIA, CPIA Page 4 Water Rising & So Are the Rates! 11/13

8 1) No improvements a) No finished floors, paneling, wallpaper, paint, etc. No builtin bars, finished floors, ceilings b) Only drywall UNFINISHED!!! And insulation 2) Only covers: utility connections, furnaces, fuel tanks, hot water heaters, water tanks, other limited items located in a basement 3) Building items covered in a basement a) Utility connections, insulation (fiberglass), sheetrock and drywall (unfinished) b) Oil or gas tanks and oil or gas in them c) Sump pumps, well water pumps and tanks d) Furnace e) Hot water heater 4) Cleanup is also covered Michael C. D'Orlando, CIC, LIA, CPIA Page 5 Water Rising & So Are the Rates! 11/13

9 c. Excluded Building items (Section IV Property Not Covered) We do not cover any of the following: 2. A building, and personal property in it, located entirely in, on or over water or seaward of mean high tide, if it was constructed or substantially improved on or after September 30, Open structures, including a building used as a boathouse or any structure or building into which boats are floated, and personal property located in, on, or over water. 6. Land, land values, lawns, trees, shrubs, plants, and growing crops 8. Underground structures, and equipment, including wells, septic tanks and septic systems. 9. Those portions of walks, walkways, decks, driveways, patios, and other surfaces, all whether protected by a roof or not, located outside the perimeter, exterior walls of the insured building or the building in which the insured unit is located. 10. Buildings or units and all of their contents if more than 49% of the actual cash value of the building or unit is below ground, unless the lowest level is at or above the base flood elevation and is below ground by reason of earth having been used as insulation material in conjunction with energy efficient building techniques. 11. Fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges, and docks. 12. Hot tubs and spas that are not bathroom fixtures, and swimming pools, and their equipment such as, but not limited to heaters, filters, pumps, and pipes, wherever located. 15. Property not eligible for flood insurance pursuant to the provisions of the Coastal Barrier Resources Act and the Coastal Barrier Improvement Act and amendments to these acts: Michael C. D'Orlando, CIC, LIA, CPIA Page 6 Water Rising & So Are the Rates! 11/13

10 d. Specifies certain items to which Cov. B applies 2. Coverage for personal property includes the following property, subject to B.1. above, which is covered under Coverage B only: a. Air conditioning units, portable or window type; b. Carpets, not permanently installed, over unfinished flooring; c. Carpets over finished flooring; d. Clothes washers and dryers; e. "Cook-out" grills; f. Food freezers, other than walk-in, and food in any freezer; and g. Portable microwave ovens and portable dishwashers. e. Personal Property items in basement are EXTREMELY limited 3. Coverage for items of property in a building enclosure below the lowest elevated floor of an elevated post-firm building located in Zones A1- A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a basement, regardless of the zone, is limited to the following items, if installed in their functioning locations and, if necessary for operation, connected to a power source: a. Air conditioning units, portable or window type; b. Clothes washers and dryers; and c. Food freezers, other than walk-in, and food in any freezer. f. Personal Property subject to special limits 6. Special Limits. We will pay no more than $2,500 for any one loss to one or more of the following kinds of personal property: a. Artwork, photographs, collectibles, or memorabilia, including but not limited to, porcelain or other figures, and sports cards; b. Rare books or autographed items; c. Jewelry, watches, precious and semiprecious stones, or articles of gold, silver, or platinum; d. Furs or any article containing fur which represents its principal value; or e. Personal property used in any business. Michael C. D'Orlando, CIC, LIA, CPIA Page 7 Water Rising & So Are the Rates! 11/13

11 g. Excluded items under Coverage B Personal Property We do not cover any of the following: 1. Personal Property in the open. 4. Recreational vehicles other than travel trailer described in II.B.6.c, whether affixed to a permanent foundation or on wheels 5. Self-propelled vehicles. (other than motorized equipment pertaining to the service of the building or assist the handicapped) while inside a building at the described location 6. Animals 7. Accounts, bills, currency, deeds, money, coins, manuscripts, records. 13. Aircraft or watercraft. 12. Hot tubs and spas that are not bathroom fixtures, and swimming pools, and their equipment such as, but not limited to heaters, filters, pumps, and pipes, wherever located. 15. Property not eligible for flood insurance pursuant to the provisions of the Coastal Barrier Resources Act and the Coastal Barrier Improvement Act and amendments to these acts: 16. Personal property you own in common with other unit owners comprising the membership of a condominium association Michael C. D'Orlando, CIC, LIA, CPIA Page 8 Water Rising & So Are the Rates! 11/13

12 h. Selected exclusions A. We only provide coverage for direct physical loss by or from flood which means that we do not cover: 1. Loss of revenue or profits; 2. Loss of access to the insured property or described location; 3. Loss of use of the insured property or described location. 4. Loss from interruption of business or production; 5. Any additional living expenses incurred while the insured building is being repaired or is unable to be occupied for any reason. 6. The cost of complying with any ordinance or law regulating the construction, demolition, remodeling, renovation, or repair of property including removal of any resulting debris. This exclusion does not apply to any eligible activities that we describe in Coverage D Increased Cost of Compliance i. Coverage D - Increased Cost of Compliance Limits 2. Limit of Liability We will pay you up to $30,000 under this Coverage D - Increased Cost of Compliance, which only applies to policies with building coverage (Coverage A). Our payment of claims under Coverage D is in addition to the amount of coverage which you selected on the application and which appears on the Declarations Page. But the maximum you can collect under this policy for both Coverage A - Building Property and Coverage D - Increased Cost of Compliance cannot exceed the maximum permitted under the Act. We do not charge a separate deductible for a claim under Coverage D. Michael C. D'Orlando, CIC, LIA, CPIA Page 9 Water Rising & So Are the Rates! 11/13

13 j. Increased Cost of Compliance Eligibility 3. Eligibility a. A structure covered under Coverage A Building Property sustaining a loss caused by a flood as defined by this policy must: (1) Be a "repetitive loss structure." A repetitive loss structure is one that meets the following conditions: (a) (b) (c) (d) The structure is covered by a contract of flood insurance issued under the NFIP. The structure has suffered flood damage on two occasions during a 10-year period which ends on the date of the second loss. The cost to repair the flood damage, on average, equaled or exceeded 25 percent of the market value of the structure at the time of each flood loss. In addition to the current claim, the NFIP must have paid the previous qualifying claim, and the State or community must have a cumulative, substantial damage provision or repetitive loss provision in its floodplain management law or ordinance being enforced against the structure; or (2) Be a structure that has had flood damage in which the cost to repair equals or exceeds 50 percent of the market value of the structure at the time of the flood. The State or community must have a substantial damage provision in its floodplain management law or ordinance being enforced against the structure. Michael C. D'Orlando, CIC, LIA, CPIA Page 10 Water Rising & So Are the Rates! 11/13

14 II. General Overview of Biggert-Waters Flood Insurance Reform Act of 2012 A. Premium increase for buildings below Base Flood Elevation B. Phase-out of subsidized rates 25% premium increase 1. Severe Repetitive Loss Properties 2. Grandfathering phase-out 3. Non-residential properties C. Reserve Fund D. Elimination of subsidy to new policies or lapsed policies for Pre-Firm properties in SFHAs and Zone D E. Overall impact Michael C. D'Orlando, CIC, LIA, CPIA Page 11 Water Rising & So Are the Rates! 11/13

15 Questions about the Biggert-Waters Flood Insurance Reform Act of What is the Biggert-Waters Flood Insurance Reform Act of 2012? Answer: The Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) is a law passed by Congress and signed by the President in 2012 that extends the National Flood Insurance Program (NFIP) for five years, while requiring significant program reform. The law requires changes to all major components of the program, including flood insurance, flood hazard mapping, grants, and the management of floodplains. Many of the changes are designed to make the NFIP more financially stable, and ensure that flood insurance rates more accurately reflect the real risk of flooding. The changes will be phased in over time, beginning this year. 2. Why was the Biggert-Waters Reform Act of 2012 passed? Answer: Flooding has been, and continues to be, a serious risk in the United States so serious that most insurance companies have specifically excluded flood damage from homeowners insurance. To address the need, in 1968 the U.S. Congress established the NFIP as a Federal program. It enabled property owners in participating communities to purchase flood insurance if the community adopted floodplain management ordinances and minimum standards for new construction. However, owners of existing homes and businesses did not have to rebuild to the higher standards, and many received subsidized rates that did not reflect their true risk. Over the years, the costs and consequences of flooding have continued to increase. For the NFIP to remain sustainable, its premium structure must reflect the true risks and costs of flooding. This is a primary driver for many of the changes required under the law. Insurance Cost/Rate Questions 3. What changes to insurance operations are anticipated? Answer: Many of the proposed changes are designed to increase the fiscal soundness of the NFIP. For example, beginning this year there will be changes addressing rate subsidies and a new Reserve Fund charge will start being assessed. There are also provisions to adjust premium rates to more accurately reflect flood risk. Other provisions of the law address coverage modifications and claims handling. Studies will be conducted to address issues of affordability, privatization, and reinsurance, among other topics. 4. Will all policyholders see changes in insurance rates as a result of BW-12? More than 80 percent of policyholders (representing approximately 4.48 million of the 5.6 million policies in force) do not pay subsidized rates. About 20 percent of all NFIP policies pay subsidized rates. Only a portion of those policies that are currently paying subsidized premiums will see larger premium increases of 25% annually starting this year, until their premiums are full-risk premiums. Five percent of policyholders those with subsidized policies for non-primary residences, businesses, and severe repetitive Michael C. D'Orlando, CIC, LIA, CPIA Page 12 Water Rising & So Are the Rates! 11/13

16 loss properties - will see the 25% annual increases immediately.. Subsidies will no longer be offered for policies covering newly purchased properties, lapsed policies, or new policies covering properties for the first time. The 80% of all NFIP policies that already pay full-risk premiums will not see these large premium increases. Most policyholders will see a new charge on their premiums to cover the Reserve Fund assessment that is mandated by BW-12. Initially, there will be a 5% assessment to all policies except Preferred Risk Policies (PRPs). The Reserve Fund will increase over time and will also be assessed on PRPs at some undetermined future date. Additional changes to premium rates will occur upon remapping, the provision calling for these premium rate changes will not be implemented until the latter half of In general, which properties will be most affected by changes in rates? Answer: Rate changes will have the greatest effect on properties located within a Special Flood Hazard Area (SFHA) that were constructed before a community adopted its first Flood Insurance Rate Map (FIRM) and have not been elevated. For many communities the initial FIRM would have been adopted in the 1970 s and 1980 s. Your local insurance agent will be able to provide you the initial FIRM date for your community. Many of these pre-firm properties have been receiving subsidized rates. Subsidies are already being phased out for non-primary residences. Starting this fall, subsidies will be phased out for businesses; properties of one to four residences that have experienced severe repetitive loss; and properties that have incurred flood-related damages where claims payments exceed the fair market value of the property. Premiums for these properties will increase by 25% per year until they reach the full risk rate. Subsidies are not being phased out for existing policies covering primary residences. However, the subsidy provided to primary residences could still be lost under conditions that apply to all subsidized policies. Subsidies will be immediately phased out for all new and lapsed policies and upon sale of the property. There may also be premium changes for policyholders after their community is remapped. But that provision of the Act is still under review and will be implemented in the future. 6. What happens if a policy with subsidized rates is allowed to lapse or the property is sold? Answer: Starting this fall, for all currently subsidized policies, there will be an immediate increase to the full risk rates for all new and lapsed policies and upon the sale/purchase of a property. Full risk rates will be charged to the next owner of the policy. 7. What does full risk rate actually mean? Answer: Simply put, it means that the premium reflects both the risk assumed by the program (that is, the expected average claims payment) and all administrative expenses. In the case of Michael C. D'Orlando, CIC, LIA, CPIA Page 13 Water Rising & So Are the Rates! 11/13

17 flood insurance, this means the premium takes into account the full range of possible flood losses, including the rare but catastrophic floods as well. 8. How can someone find out what a property s full risk rate will be? Answer: Of the many factors that determine the full risk rate of a structure, the single most important is the elevation of the structure in relation to the Base Flood Elevation (BFE). A community s Flood Insurance Rate Map (FIRM) indicates the area of the community that has a 1% or greater annual chance of flooding. That area is called the Special Flood Hazard Area, or high-risk zone. Put another way, the BFE is the elevation where there is a 1% or greater annual chance of flooding. For a property in the high-risk zone, you need to know the elevation of the structure in relation to the BFE. Generally, the higher the elevation above the BFE, the lower the flood risk. The information is shown on an Elevation Certificate, which is a form completed and signed by a licensed engineer or surveyor. So to determine the premium for a property in a high-risk zone, you first need an elevation certificate. Then, an insurance agent can calculate the premium based on the amount of coverage desired. 9. What percentage of policies nationwide, and in high risk zones, actually receives these subsidized rates? Answer: More than 80 percent of policyholders (representing approximately 4.48 million of the 5.6 million policies in force) do not pay subsidized rates. About 20 percent of all NFIP policies pay subsidized rates. However, only 5 percent of policyholders those subsidized policies covering non-primary residences, businesses, and severe repetitive loss properties - will see immediate increases to their premiums. 10. When will NFIP Grandfathering be eliminated? Answer: Currently, the NFIP Grandfather procedure provides eligible property owners the option of using risk data from previous Flood Insurance Rate Maps (FIRMs) if a policyholder maintained continuous coverage through a period of a FIRM revision or if a building was constructed in compliance with the requirements for the zone and BFE reflected on a previous FIRM. A provision of BW-12, however, requires FEMA to use revised flood risk data (zone and BFE) after a map revision. The legislation provides a 5-year mechanism to phase-in the new rates. This provision impacts the NFIP Grandfather procedure and will be implemented in the latter half of Many of the precise details of this implementation are still under development. 11. Is there any option for people who are now in a flood zone, did not have substantial damage, but now the BFE is 10 feet higher than previously and face dramatic rate increases? Answer: FEMA s Hazard Mitigation Assistance (HMA) HMA programs provide funds for projects that reduce the risk to individuals and property from natural hazards. These programs enable mitigation measures to be implemented before, during, and after disaster recovery. Local jurisdictions develop projects that reduce property damage from future disasters and submit Michael C. D'Orlando, CIC, LIA, CPIA Page 14 Water Rising & So Are the Rates! 11/13

18 grant applications to the State. The States submit applications to FEMA based on State criteria and available funding. The HMA programs include: Hazard Mitigation Grant Program (HMGP) - The Hazard Mitigation Grant Program provides grants to implement long-term hazard mitigation measures after a major disaster declaration. The purpose of HMGP is to reduce the loss of life and property due to natural disasters and to enable mitigation measures to be implemented during recovery from a disaster. Flood Mitigation Assistance (FMA) - The Flood Mitigation Assistance program provides funds on an annual basis so that measures can be taken to reduce or eliminate risk of flood damage to buildings insured under the NFIP. Pre-Disaster Mitigation Program (PDM) - The Pre-Disaster Mitigation Program provides nationally competitive grants for hazard mitigation plans and projects before a disaster event. States can receive PDM funds regardless of whether or not there has been a disaster declared in that state. FEMA encourages property and business owners interested in implementing mitigation activities to contact their local community planning, emergency management, or State Hazard Mitigation Officer for more information. Individuals and businesses may not apply directly to the State or FEMA, but eligible local governments may apply on behalf of a private entity. Your community will be working with the State to develop applications for HMA funding and implement the approved mitigation projects. Information about the HMA programs can be found at Michael C. D'Orlando, CIC, LIA, CPIA Page 15 Water Rising & So Are the Rates! 11/13

19 National Flood Insurance Program October 1, 2013, Premium Rate and Rule Changes: A Summary 1. Premium Increases Premiums will increase an average of 10% for policies written or renewed on or after October 1, The average premium change by zone varies as described below. The premium for a particular policy may change more or less than the average change. BW 12 Changes - Reserve Fund: The changes below include the increase due to a 5% reserve fund assessment for all policies other than PRP policies. - 25% increases for certain Pre-FIRM policies: Pre-FIRM increases (including the reserve fund assessment) include a 25% increase above the rates in effect when BW 12 was enacted for policies issued on: o Non-primary (non-principal) residences (The first 25% increase was effective January 1, The next increase is effective January 1, 2014.), o Severe Repetitive Loss (SRL) properties, o Properties that have incurred flood-related damages in which the cumulative amount of NFIP claim payments exceeded the fair market value of the property (as a subset of SRL properties), and o Business properties. Federal Policy Fee: The Federal Policy Fee is increasing from $20 to $22 for PRP policies and from $40 to $44 (or equivalent multiple for Residential Condominium Building Association Policies) for all other policies. V Zones (coastal high-velocity zones) Rate increases are being implemented again this year as a result of the Heinz Center s Erosion Zone Study, which clearly indicates that current rates significantly underestimate the increasing hazard from steadily eroding coastlines. - Post-FIRM V Zones: Premiums will increase 11%. - Pre-FIRM V Zones: Premiums will increase 17%. A Zones (non-velocity zones, which are primarily riverine zones) - Post-FIRM A1-A30 and AE Zones: Premiums will increase 6%. - Pre-FIRM AE Zones: Premiums will increase 16% to reduce the amount of subsidy in our Pre-FIRM rates. - AO, AH, AOB, and AHB Zones (shallow flooding zones): Premiums will increase 6%. - Unnumbered A Zones (remote A Zones where elevations have not been determined): Premiums will increase 8%. - A99 Zones (approved flood mitigation projects, e.g., levees still in the course of construction) and AR Zones: Premiums will increase 9%. Michael C. D'Orlando, CIC, LIA, CPIA Page 16 Water Rising & So Are the Rates! 11/13 1

20 X Zones (zones outside the Special Flood Hazard Area) - Standard-Rated Policy: Premiums will increase 8%. - Preferred Risk Policy (PRP): Premiums will increase an average of 1%. This increase consists of: o o A 19% premium increase for policies written under the PRP Eligibility Extension. Less than 1% for all other PRP policies (i.e., for PRPs on buildings that are currently mapped outside the SFHA) due to the increase in the Federal Policy Fee. Premiums will remain unchanged. Other: Other than updates to Mortgage Portfolio Protection Program, Provisional, and Tentative rates, there are no additional changes (to ICC premiums, deductibles, etc.) that would affect the premium for an individual policy. 2. Exclusion of Certain Properties from Receiving Subsidized Premium Rates (Renewals) Effective October 1, 2013, the NFIP will no longer allow renewals for certain Pre-FIRM buildings in a Special Flood Hazard Area (SFHA) or Zone D to receive subsidized premium rates (Table 2A). These properties previously received subsidized premium rates because they were built on or before December 31, 1974, or before the effective date of the initial Flood Insurance Rate Map (FIRM) published for the community. Effective October 1, 2013, renewals for the properties noted below will experience a premium rate increase up to 25 percent annually until such time as elevation data supplied on an Elevation Certificate (EC) indicates that the fullrisk premium rate is lower than the subsidized rates reflecting a 25-percent increase over the previous year. This change will affect the property types listed below: Severe Repetitive Loss (SRL) properties consisting of 1-4 family residences. The Rating section of the Flood Insurance Manual (FIM) contains a new rate table (Table 2C) for all new properties transferred to the NFIP Special Direct Facility (SDF) and renewal Pre-FIRM SRL properties in an SFHA and Zone D with an effective date on or after October 1, This table reflects a 25% increase over the premium rates previously applied to Pre- FIRM SRL properties. Properties that have incurred flood-related damage in which the cumulative amounts of NFIP flood insurance claim payments equaled or exceeded the fair market value of the property. This category of Pre-FIRM properties is considered a subset of all SRL properties. Therefore, SRL renewals for Pre-FIRM buildings in an SFHA and Zone D for all 1-4 family residences will be rated using the new rate table (Table 2C), as will other SRL properties. This new table will apply to all SRL renewal policies meeting the above criteria that are effective on or after October 1, This table reflects a 25% increase over the premium rates previously applied to Pre-FIRM properties. Michael C. D'Orlando, CIC, LIA, CPIA Page 17 Water Rising & So Are the Rates! 11/13 2

21 Business properties as described below. Business properties are part of the larger category of non-residential occupancy as defined by the NFIP. The NFIP defines rate classes by flood zone. The non-residential occupancy is a subset of policies in all existing rate classes. By increasing the non-residential occupancy category 25% in Table 2A, FEMA will ensure that all business properties are rated as required by the law. Until business properties have been defined by the rulemaking process, business properties will continue to be rated using non-residential premium rates from Table 2A. Effective October 1, 2013, the Application form will include a new data element to capture whether the building is a business property or not. For the purpose of completing the Application, a business property is any non-residential building that produces income, or a building designed for use as office or retail space, or for wholesale, hospitality, or similar uses. Buildings that are permitted for residential use such as apartments, rental dwelling units, or churches are not considered business properties for the purpose of completing the Application. 3. No Extension of Subsidy to New Policies or Lapsed Policies for Pre-FIRM Properties in SFHAs and Zone D (New Business) Effective October 1, 2013, the NFIP will no longer provide any extension of premium rate subsidy to new or lapsed Pre-FIRM properties/policies, which will be subject to full-risk rating. These properties will require an Elevation Certificate (EC) including photos in order to determine full-risk rating using the current FIRM. Tentative or provisional rates may be used for 1 year only until an EC is provided. New business Pre-FIRM application submissions will use Post-FIRM rating procedures from the Rating section of the Flood Insurance Manual or the Specific Rating Guidelines depending on the elevation difference. Because there are no coverage limitations in an enclosure below the elevated floor of a Pre-FIRM building, such buildings must be rated as non-elevated buildings. New risk rating methods have been developed for these policies, and no variance documentation or Elevated Building Determination Form will be required. See Attachments B and E for details. The implementation of Section (B) of BW 12, codified at 42 U.S.C. 4014(g), eliminates the NFIP grandfather rules for all new business Pre-FIRM structures receiving subsidized rates, except for Pre-FIRM structures that were built in compliance and have a construction date that is on or after the community s initial FIRM date and before January 1, In addition, this provision does not impact policies issued under the existing PRP Eligibility Extension, as these policies are not subsidized. Michael C. D'Orlando, CIC, LIA, CPIA Page 18 Water Rising & So Are the Rates! 11/13 3

22 The following Pre-FIRM properties/policies in SFHAs and Zone D are impacted: Properties not insured by the NFIP as of the date of enactment of BW 12 (with a possible exception created by Section of BW 12). - Any application for a policy that is not a rollover, transfer, or rewrite and is effective on or after October 1, 2013, will be subject to full-risk rating. - Renewals of policies resulting from applications that were not rollovers, transfers, or rewrites that initially became effective on or after July 6, 2012, are subject to full-risk rating on the first renewal effective on or after October 1, Policies under the NFIP that have lapsed in coverage as a result of the deliberate choice of the policyholder. - A lapsed policy is any policy for which premium payment is received by the insurer after the 30-day grace period following the policy s expiration date. This provision will apply to Pre-FIRM subsidized policies that experience a lapse on or after October 1, Lapsed policies with reinstated coverage that became effective on or after October 4, 2012, and before October 1, 2013, are subject to full-risk rating on the first renewal effective on or after October 1, A lapsed Pre-FIRM subsidized policy cannot be reinstated on or after October 1, 2013, and loses eligibility for grandfather rules under continuous coverage. - A new application and an EC will be required. An exception will be made if a Pre-FIRM subsidized policy lapses due to community suspension. In that case, the policy may be written using subsidized rates if the application and premium are received by the insurer within 180 days of the community reinstatement date. Properties purchased after the date of enactment of BW The Application form will include a new data element to record the property purchase date. This provision will not apply to gifts, transfers of ownership, or assignments to an estate or trust in which a purchase did not take place. - The General Change Endorsement form will include a new data element to record an assignment due to purchase. Mid-term assignments due to purchase of Pre-FIRM properties in SFHAs and Zone D that were rated using subsidized rates will be subject to full-risk rating (pro rata) effective the date of purchase, using the current map information. - Renewals of policies receiving subsidized rates and covering a property purchased on or after July 6, 2012, are subject to full-risk rating on the first renewal effective on or after October 1, Michael C. D'Orlando, CIC, LIA, CPIA Page 19 Water Rising & So Are the Rates! 11/13 4

23 4. Policies under the PRP Eligibility Extension PRPs issued under the Eligibility Extension, where a map revision date newly mapping the property as being located in an SFHA was effective on or after October 1, 2008, will see annual increases averaging 20% beginning with new business and renewals effective on or after October 1, A new set of PRP rate tables will be provided for properties receiving the PRP Eligibility Extension. These policies must be issued or renewed using Risk Rating Method Q. Properties that are currently mapped in a B, C, or X Zone on the current FIRM and meet the loss eligibility requirements will continue to be issued or renewed using Risk Rating Method 7 and will be rated using the regular PRP rate tables. 5. Introduction of Reserve Fund In accordance with Section of BW 12, a Reserve Fund ratio will be applied to each NFIP policy, except PRPs and GFIPs, effective on or after October 1, Reserve Fund amounts will be part of the premium calculation for each policy; however, they will not be subject to WYO Company expense allowances, Unallocated Loss Adjustment Expenses, or NFIP Direct Servicing Agents commissions. The Reserve Fund for policies effective on or after October 1, 2013, is 5% of the total premium. 6. Federal Policy Fee Effective October 1, 2013, the Federal Policy Fee will increase to $44 for non-prps and to $22 for PRPs. 7. Elimination of No Waiting Period Due to Lender Requirement The 30-day waiting period applies to a new application when the lender determines that a loan on a building in an SFHA that requires flood insurance does not have it. 8. NFIP Form Changes Changes have been made to the NFIP Flood Insurance Application, General Change Endorsement, Preferred Risk Policy, and Cancellation Forms. The previous versions of these forms will expire on August 31, The revised forms now incorporate certain data elements required for the effective implementation of the provisions of BW 12. Further guidance on these new requirements will be provided in the relevant sections of the Flood Insurance Manual. See Attachment D for more details. Michael C. D'Orlando, CIC, LIA, CPIA Page 20 Water Rising & So Are the Rates! 11/13 5

24 9. January 1, 2014, Program Change Effective January 1, 2014, the premium for non-principal/non-primary residences increases 25% per BW 12; this includes an increase in the Reserve Fund load to 5%. Michael C. D'Orlando, CIC, LIA, CPIA Page 21 Water Rising & So Are the Rates! 11/13 6