Changes Coming to the National Flood Insurance Program What to Expect

Transcription

1 Changes Coming to the National Flood Insurance Program What to Expect Impact of changes to the NFIP under the Biggert-Waters Act Norm Ashford Erin May

2 Biggert-Waters Flood Insurance Reform Act of 2012 (BW12) In 2012, Congress passed legislation which will dramatically change parts of the National Flood Insurance Program Changes to make the program more financially stable Changes which require the NFIP to raise rates to reflect true flood risk Changes for property owners affected by map updates There are two core changes to the previous program design Reduced insurance rates to encourage flood insurance purchase for older high risk buildings are sunset Reduced insurance rates for properties built in compliance with NFIP maps will no longer be available when updated maps show increased risks 2

3 Biggest Changes Are Insurance There are many far-reaching mapping provisions in BW12 They are generally going to be implemented gradually in coordination with the Technical Mapping Advisory Council Funding will limit how quickly they can be implemented Rulemaking, and the associated extended timelines, will also be a factor In Region 8, the only property owners affected are those pre- FIRM structures located in any A zone Actuarially rating for these structures will now require an elevation certificate for accurate rating 3

4 Major Provisions Affecting Risk MAP Authorizes mapping program (216); Establishes Technical Mapping Advisory Council (215); Creates annual budget cross-cut report, and requires interagency coordination (220, 221); Expands statutory appeals definition, allows for appeals expenses reimbursement and codifies scientific resolution panel (217, 218, 246); and Creates flood protection structure task force, new insurance requirements for levees being improved, and study on levees (226, 230, 231). 4 4

5 Major Insurance Impacts Pre-BW12 2 keys ways that rates don t reflect risk Pre-FIRM rates reduced premium (compared to full risk rate) designed to encourage purchase of insurance where it was likely to be difficult to afford. Written into the NFIA. Pre-FIRM is a Taxpayer subsidy i.e. the rate structure of the insurance program is not designed to produce revenue to compensate for this discount. Grandfathering rates premium based on risk shown on superseded flood map. Can be where flood risk zone changed, or where BFEs increased. Grandfathering is a cross-subsidy where overall premiums are set for the risk class as a whole to pay for expected losses. Grandfathered policies are deliberately paying less than full risk rate. Extra premium is spread over other policies in the risk class BW12 Eliminates many pre-firm subsidies near-term and sunsets the rest at the sale of property BW12 Prohibits grandfathering after map change 5

6 What is Changing? Flood insurance rates Rates for all properties will more accurately reflect risk Subsidized rates for non-primary residences are being phased out now Other subsidized rates will be eliminated over time, beginning late 2013 Purchase or sale of a pre-firm property, or allowing a policy to lapse, could trigger rate changes beginning in 2013 Beginning in 2014, when new community flood maps show that a property s flood risk has increased, premiums could also increase in some cases significantly. But those changes will be phased in Only 19% of current policyholders will be affected by the B-W 12 Section 205 revisions -Only 5% will see the immediate 25% annual premium increase -Only10% of all policies cover subsidized primary residences which will remain subsidized unless or until: -The property is sold or the policy lapses for any reason -The remaining 4% includes subsidized condos & non-condo multifamily residences These policies will keep their subsidy until FEMA develops guidance for their subsidy removal. 6

7 Changes for Pre-FIRM Non-Primary Residences Rates will increase up to 25 percent per year until they reflect the full-risk rate Changes become effective January 1, 2013, or at policy renewal Pre-FIRM: Built before the community s first Flood Insurance Rate Map became effective and not substantially damaged or improved since then Non-primary residence: A building that will be lived in by the homeowner or the owner s spouse for less than 80 percent of the year 7

8 Changes to Other Subsidized Rates Premiums for pre-firm commercial buildings Increase by up to 25 percent per year until they reach full-risk rates Premiums for repetitively flooded buildings These Severe Repetitive Loss properties of one to four residences will receive a premium increase of up to 25 percent per year until reaching full-risk rates Includes buildings with cumulative flood insurance payments that meet or exceed fair market value These changes will start in late

9 Direct Move to Full-Risk Rates After the sale/purchase of a property Subsidized rates no longer can be assigned to the new owner After a policy lapse Allowing a policy to lapse could be costly When a new policy is issued Policies for buildings uninsured as of the date that the law was passed (July 6, 2012) These changes also are slated to start in late

10 Who Won t Be Affected? Owners of pre-firm primary residences in SFHAs will be able to keep their subsidized rates unless or until: You sell your property If your policy lapses If you suffer a severe loss If you have suffered repeated flood-related losses If you purchase a new policy If you have refused an offer to mitigate flood losses to your property 81% of current policyholders are ALREADY actuarially rated, so they will NOT be affected by the changes proposed 10

11 What about when a new flood map is adopted? If you live in a community which adopts a new, updated Flood Insurance Rate Map (FIRM) AND your property is in the SFHA on the updated FIRM: Grandfathering will be phased out. The Biggert-Waters Act calls for a phase-out of discounts, including grandfathering provisions. This includes moving to full actuarial rates for properties which are newly mapped in to a Special Flood Hazard Area. But the pain is lessened somewhat, because new rates will be gradually phased in at 20% per year for five years for properties in the SFHA with an existing flood insurance policy and properties newly mapped into the SFHA. Implementation anticipated in

12 How Does This Change Our Messages Grandfathering will go away as a primary solution. FEMA may still sell grandfathered policies until 2014, but then those grandfathering discounts will begin phasing out for any maps updated since July Previously we would encourage communities and property owners to add freeboard to our BFEs for increased safety. Now, we should caution them that building right at the BFE can have major cost implications down the road. If the mapped risk increases, they will be negatively elevated and insurance will be very expensive. 12

13 How Can Property Owners Lower Costs? Home and business owners: Talk to your insurance agent about your insurance options You ll probably need an Elevation Certificate to determine your correct rate Higher deductibles might lower your premium Consider remodeling or rebuilding Building or rebuilding higher will lower your risk and could reduce your premium Consider adding vents to your foundation or using breakaway walls Talk with local officials about community-wide mitigation steps Community leaders: Consider joining the Community Rating System (CRS) or increasing your CRS activities to lower premiums for residents. Talk to your state about grants. FEMA issues grants to states which can distribute the funds to communities to help with mitigation and rebuilding. The smartest way to save might be to build higher. 13

14 Biggert-Waters and Rebuilding Decisions After a Flood As elevations go up, premiums can drop. ZONE A EXAMPLE Homes built below BFE could be hit hard by an increase to full-risk rates Elevating 3 feet above the BFE could lower premiums significantly! 14

15 Biggert-Waters and Rebuilding Decisions After A Flood Future insurance savings can offset higher construction costs. ZONE V EXAMPLE ( NEW BFE SHOWS 4 HIGHER RISK) ELEVATION /COSTS 4 ft 8 ft 10 ft Foundation $18,000 $29,000 $30,000 Flood Insurance/yr $17,500 $ 7,000 $ 3,500 Homeowner pockets more than $13,000/year compared to the current BFE Mortgage increase + flood/yr $17,500 $ 7,588 $ 4148 Peace of Mind None Some More 17

16 The Bottom Line Many changes are coming to the Flood Insurance program Congress acted to make program stronger financially On many more policies, flood insurance rates will reflect full risk. Insurance rates will rise on some policies There are specific actions which will trigger rate changes Talk to your insurance agent about how changes may affect your property and flood insurance policy Building or rebuilding higher can lower your flood risk and could save you money FEMA can help communities lower flood risk and flood insurance premiums through: CRS program Various mitigation grants Technical advice on building and rebuilding to mitigate future flood damage 15

17 Questions & Answers