The National Flood Insurance Program (NFIP) made some crucial changes that are set to take affect April 1, 2016. The most important changes are:
- Premium increases
- Risk communication changes
- Consequences for allowing a policy to lapse
- New look at rating Preferred Risk Policies (PRPs)
Navigating these new changes can be confusing, so we did the research for you. Here are the five main changes NFIP plans to make in detail:
Residential premium increases
The most notable change to the NFIP is an increase in premium rates. The premium increases will not exceed the limit set in 2014 by the Homeowners Flood Insurance Affordability Act (HFIAA). The Pre-FIRM (Flood Insurance Rate Map) residential rate increases will not exceed 18 percent. The only exceptions to these increases are:
- Policies on non-residential properties, which we will discuss later
- Premium rate increases that resulted from:
- Changes to the CRS (Community Rating System) class
- Miscalculated ratings
- Increases in the amount of insurance purchased
The Federal Policy Fee will also increase, from $22 to $25. One thing to note is that surcharges and fees are not considered to be a part of the premium cost. So, the percentage increase including fees and surcharges may actually go over the 18 percent cap.
A 25 percent rate increase for non-residential properties
FEMA will be increasing premiums by 25 percent for Pre-FIRM subsidized non-residential business properties. All these subsidized policies will increase annually until they reach full risk rates. The four categories of affected non-residential business properties are:
- Non-primary residential properties
- Business properties
- Severe repetitive loss properties
- Substantially damaged and substantially improved properties
New rating of PRPs and property newly mapped into SFHA
This change is going to affect how properties that are newly mapped in a high-risk area will be rated. Newly mapped areas with high-risk SFHA (Special Flood Hazards Area) are PRPs only for the first year they keep the policy. The premium will only increase 15 to 18 percent until the policy reaches full-risk. Cynthia DiVinceti, vice president at Aon National Flood Service told iamagazine.com this change is " moving them toward full-risk rate for the SFHA, but in a measured, stepped process that eases them into it as opposed to 'here it is, pay it now.'"
Consequences for Pre-FIRM policies that lapse
This change affects policyholders that allow their coverage to lapse or cancel. If your coverage lapses for more than 90 days, you will not be eligible to pay a subsidized rate. Instead policyholders that allow coverage to lapse will have to pay the full-risk rate. There are two exceptions to this change:
- If insured no longer legally required to have flood insurance
- If insured was a part of community that was suspended and you could not get individual coverage
According to Section 28 of the HFIAA, FEMA must clearly communicate full flood risk to individual property owners. They must do so no matter if the policyholders premium rates are full-risk rates or not. All new policyholders must be notified by April 1, 2016 and renewals by October 1, 2016. FEMA will be making ongoing changes to improve the understanding of the risk of flood damage, as well as how flood insurance premiums factor into that risk. Vice President of flood operations at Selective Insurance Company of America, Cassie Masone, told iamagazine.com "The rollout of Section 28 is aimed at communicating the full flood risk determination to [the] individual property owner, regardless of whether the homeowners' premium rates are full actuarial rates." Making sure that risks are well communicated amongst the policyholders maintains transparency. It helps policyholders understand the cost of coverage. It also forms an understanding of why their property ranked the way it did.
There are even more changes due in the next year or two. Some of which may encourage new channels of involvement in flood insurance coverage. If you want more information on flood insurance, you should read our article here. If you have flood insurance and haven’t heard about these changes, you should contact your agent.