Congressional Advisory: National Flood Insurance Program Bulletin Implements Rate Changes

The Federal Emergency Management Agency (FEMA), through the National Flood Insurance Program (NFIP), provides the opportunity for homeowners, renters, and businesses to purchase flood insurance for financial protection against flooding. FEMA also works with communities to update and develop flood maps to inform the community of their current flood risk. These actions allow community members to take important steps to prepare for, and mitigate, flooding risk in their area.

FEMA took important steps to implement changes to the NFIP as mandated by the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).  Last October 2015, in the attached NFIP Bulletin, FEMA advised stakeholders and interested parties of the implementation of the April 1, 2016, program changes.

On April 1, 2016, incremental rate increases required by law to continue the process to bring rates to full risk, will take effect. In addition, NFIP has processes in place to more clearly communicate flood risk to policyholders. It is important to note that nearly 80 percent of NFIP policyholders are minimally impacted by either law, because they already paid a full-risk rate prior to the passage of Biggert-Waters or HFIAA.

The NFIP is working with our Write Your Own (WYO) insurance companies to better inform insurance agents and other stakeholders on the changes that take effect on April 1, 2016, for new business and renewals beginning on and after April 1, 2016.

Key changes being made to the program include the following:

Insurance Policy Premium Increases (per Biggert-Waters Section 100205; HFIAA Section 5)

• Premiums and fees for all policies will increase, and the Reserve Fund Assessment (RFA) will increase for Preferred Risk Policies (PRPs).
• Twenty five percent (25%) annual increases for certain pre-Flood Insurance Rate Map (pre-FIRM) subsidized policies (including non-primary residential and business properties).
• An average increase of no more than 15 percent for all other risk classes, except individual premium increases can go up to, but no higher than, 18 percent.
• Rates for non-residential pre-FIRM subsidized-rated buildings that are not businesses—including houses of worship, nonprofits, and schools—will increase at a rate of no more than 18 percent per year.
• The Reserve Fund Assessment, which is included in the premium cap calculations, will increase from 10 percent to 15 percent for Preferred Risk Policies. This adjustment aligns with the percentage currently charged to all other policies.

Federal Policy Fee and HFIAA Surcharge

• The Federal Policy Fee (FPF) and HFIAA Surcharge are not considered premiums and are therefore not subject to premium cap limitations.
• The FPF will increase from $22 to $25 for PRPs and from $45 to $50 for standard-rated policies. The condominium FPF will also increase based on the number of units. As a result, the total increase in cost at renewal may exceed 18 percent in some cases.
• The HFIAA Surcharge will not change. Policyholders will continue to pay $25 annually for owner-occupied single family detached buildings, including attached townhomes and individual condominium units that are the primary residence of a policyholder and $250 annually for all other buildings.

Communicating Flood Risk Determinations (HFIAA Section 28)

• Write Your Own companies (WYOs) and the NFIP Direct Servicing Agent (NFIP Direct) will begin validating the current map information so that FEMA can begin providing additional information to policyholders regarding their flood risk in Fall 2016.
• WYOs and the NFIP Direct will review all policies at least 180 days prior to renewals, starting with October 1, 2016, renewals and confirm how they are being rated (e.g., grandfathered, full-risk rated, using the Newly Mapped procedure).
• FEMA will then mail letters to policyholders communicating their flood risk. The letter will provide risk information reported by the policyholder’s insurer and will include the rating characteristics of the building, the current and rated flood zones, the Base Flood Elevation, and elevation difference, if available.
• HFIAA Section 28 requires FEMA to clearly communicate full flood risk determinations to each policyholder, even if their premium rates are full-risk rates.

Revised Rating Procedures for PRPs and Buildings Newly Mapped into Special Flood Hazard Areas (HFIAA Section 6)

• FEMA will apply premium rate increases using a multiplier based on the year a new map became effective.
• Properties not covered under the NFIP as of March 31, 2016, and that were newly mapped into the SFHA by a FIRM revision that occurred between October 1, 2008, and April 1, 2015, are no longer eligible to be rated using the Newly Mapped rating procedure

o   Post-FIRM properties newly mapped into the SFHA between October 1, 2008, and April 1, 2015, and not covered under the NFIP as of March 31, 2016, may qualify for “built-in-compliance” grandfathering.

o   Pre-FIRM properties newly mapped into the SFHA between October 1, 2008, and April 1, 2015, and not covered under the NFIP as of March 31, 2016, may qualify for Pre-FIRM subsidized rates.

Lapsed Pre-FIRM Subsidized Policies Now Rewritten at Full-Risk Rates (with exceptions) (Biggert-Waters Section 100205; HFIAA Section 3)

• Section 3 of HFIAA prohibits the use of pre-FIRM subsidized rates for lapsed policies, unless the decision of the policyholder to permit the lapse was the result of the lender no longer requiring coverage.
• Policies on pre-FIRM subsidized-rated buildings where coverage is reinstated  more than 90 days after policy expiration/cancellation since April 1, 2016, will be rewritten using full-risk rates, unless:

o   The lender no longer required the policyholder to obtain and maintain flood insurance, or

o   The policyholder was in a community that was suspended from the NFIP, and the policy was reinstated within 180 days of reinstatement of the community as a participant in the NFIP.

• Property owners of Pre-FIRM buildings in high-risk areas who purchase a non-NFIP policy will be rated using full-risk rates unless an NFIP policy is reinstated within 90-days of the expiration of previous NFIP policy.
• Policyholders need to make sure the premium is paid in 30 days from the expiration date of the policy or they will have a period without coverage.

All the 2015 Write Your Own Program Bulletins are posted online and available anytime at http://www.nfipiservice.com/bulletin_2015.html.  Please click here to access the all program changes effective on April 1, 2016.

If you have any questions, please contact FEMA’s Congressional Affairs Division at (202) 646-4500.