Flood Insurance Rates &
More To Change in 2015

As the 2015 Hurricane Season edges closer to its peak time of the year and the summer’s rain seems to create nearly daily flooding in our streets and neighborhoods, now is a wise time to consider the topic of flood insurance, as well as a number of changes the Federal government has made to the program that guides this important topic.

No matter which insurance company name might be on your flood insurance policy the fact is that for over five decades all rates, rules and regulations related to primary flood insurance have been set by the National Flood Insurance Program (NFIP), a part of FEMA within our Federal government. NFIP is in the process of implementing Congressionally mandated reforms required by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) that attempt to offset deficits the program has faced dating back to 2005’s Hurricane Katrina.

Since this new law will likely impact your coverage (and cost) we want to outline a few of the changes that begin in 2015 and other important information, as well as possible options, with you at this time.

The new law attempts to repair some of the more damaging impacts of an earlier, ill-conceived law, the Biggert Waters Flood Insurance Reform Act of 2012, as well as slowing some flood insurance rate increases and offering relief to some policyholders who experienced steep flood insurance premium increases in 2013 and early 2014. In fact, in December of 2013 we wrote an article on the Biggert Waters law entitled New Federal Law That Seeks To Raise Rates Is Flawed. You can find that article on our website in the Bob’s Blog area or by clicking here.

It is important to know that the new Federal law will cause flood insurance rates and other charges to take place on new or existing policies beginning April 1, 2015. In addition to insurance rates, other changes resulting from Biggert-Waters and HFIAA will be implemented that will affect the total amount a policyholder pays for a flood insurance policy.

2015 FLOOD INSURANCE CHANGES

Here are the highlights of the 2015 NFIP Changes:

  • Rates started to increase with April 2015 renewals. NFIP annual policy rate increases, with some exceptions, will be between 5% and 15% with individual policy premiums to be capped at 18% before applying what is called the Annual Surcharge and Federal Policy Fee. Given their new approach even if your rates decreased the overall cost may increase the Total Amount Due on your flood policy.
  • The NFIP Reserve Fund is now being applied to Preferred Risk Policies at 10% and has been increased to 15% on all other policies. (The Reserve Fund is calculated into the 18% HFIAA annual per policy premium cap.)
  • Federal Policy fees are increased slightly this year. The Policy Fee is not included in the calculation of the 18% HFIAA annual per policy premium increase cap.
  • The new HFIAA Surcharge is federally mandated and has been newly initiated at $250 for all policies unless it is your verified primary residence. Primary, verified residences are eligible for a $25 HFIAA Surcharge. If your policy Surcharge is $250 and this policy covers your primary residence (*more than 50% of the 365 days in the upcoming year) and you have not yet verified primary residency to your agent, please contact your agent to accomplish this change. If you have any additional questions on the increase in your flood policy premium, please contact your agent at the phone number on your renewal billing. The surcharge is not included in calculation of the 18% HFIAA annual per policy premium cap.
  • A new deductible option of $10,000 for both building and contents is now available for 1-4 family residential policyholders. The deductible applies separately to both building and contents. If this new, larger deductible is of interest and if flood insurance is/was required by your lender, please confirm with your lender that they will accept the higher deductible.

PRIVATE INSURER OPTIONS?

Following decades of catastrophic flooding in the Mississippi Valley, and after paying claims on the same homes, flood after flood, private insurers deemed the risk of flood too great to insure and ceased offering such coverage in the 1960s. A crisis, of sorts followed as lenders, real estate interests and consumers quickly learned that without flood insurance in areas susceptible to rising water claims it was often impossible to buy, sell or build. In response to what took place federal government stepped in and so was borne the National Flood Insurance Program that has, in the decades since, written virtually all primary flood insurance protection in America.

In response to the sudden increase in premiums that the ill-conceived Biggert Waters Flood Insurance Reform Act of 2012 initially sought, a handful of private insurers began toying with the idea of offering private, non-government subsidized flood insurance again for the first time in decades. As long as flood claims remain limited it will not surprise us to see such programs grow in the years ahead but at this point they are limited in their size and scope. The handful of these new programs that exist are limited in terms of the coverage being offered and where such coverage can be written. Of added concern is that in some cases these policies might not be acceptable to one’s lender. As such, caution is suggested when considering such options at this time as not all flood insurance is, you might say, created equally.

Currently, most private flood policies are being offered as either an endorsement to a homeowner’s policy or a stand-alone policy written by a non-admitted insurer. As a result of the cancellation provision found within most homeowner’s policies a flood insurance endorsement to such a policy might not be acceptable to lenders and, thus, its best to confirm that your lender will even allow such a change if it’s available. An NFIP policy has evolved over the decades including extensive lender input and can only be cancelled for specific reasons outlined in the NFIP manual while a homeowner’s policy can be cancelled by the insured for any reason at any time. It is the thinking of some that the broader termination provision within a homeowner’s policy exposes the lender to uncovered losses and regulatory penalties so it’s best to ask one’s lender before using such a solution if it’s an endorsement to a homeowner’s policy.

Stand-alone private flood policies are similar to NFIP policies but are most commonly being offered by non-admitted insurers. Such insurers are not subject to regulation by state Insurance Departments, nor protection from a given state’s insolvency fund. As with any ‘new’ (or in this case old idea that has come back to life) idea the availability and prices for such coverage vary widely. In some cases the cost might be less than NFIP rates and in others it’s similar or more.

It’s worth noting that the same challenges that limit the availability of wind insurance in windstorm exposed regions of our country most certainly impact the availability of flood insurance in so called Special Flood Hazard Areas, those most susceptible to flood losses. It is also worth considering that the new Federal law (HFIAA) includes a provision that makes an NFIP policyholder ineligible for a subsidized rate if the policyholder leaves NFIP unless the policy is no longer required by the lender.

Although the Federal government has yet to publish its guidance on this rule, it’s possible that leaving an NFIP subsidized program such as those most everyone uses today for a private insurer could mean you would lose subsidized rates from NFIP should you ever need (or want) to return to the government’s (NFIP) program. Although NFIP rates will continue to increase due to the new law’s requirements they will do so in a predictable manner as opposed to the private market where availability and affordability cannot be predicted.

Morris & Reynolds offers both NFIP and private insurer options. We can also help you with your questions related to the new flood laws and most anything else you might need. As these important topics and the available options continue to evolve in the future you can and should rely on our professional agents and underwriters to help answer your questions, obtain options to ensure you have the choices and solutions you need, desire and deserve.

Please contact us at any time for any reason and, as always, thank you for the honor of providing your protection.

Flood HFIAA 2015 Changes

Flood Verification of Primary Residence

Private Flood Insurance

New Federal Flood Law That Seeks to Raise Rates is Flawed

What You Should Know About Flood Insurance

Flood Insurance Act Provides Relief from Planned Premium Increases

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