The National Flood Insurance Program Makes Significant Changes to Flood Insurance Rules Starting April 1, 2016

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No, this is not an “April Fools” joke. As Spring arrives and with summer’s hurricane season not far away, the changes being made by the Federal Flood Insurance Program are important for property owners to understand and consider. The National Flood Insurance Program (NFIP), part of FEMA, has set all of the rates, rules and regulations related to America’s primary flood insurance programs for over 50 years and, as of April 1st, will be making a number of important changes that we would like to share with you. You can review all of the details from FEMA by clicking here, but some of the more significant changes include the following;


The average rate increase is 9%. The maximum increase is 18% with a few exceptions. For example, on properties built before a community’s first “Flood Insurance Rate Map” (so called “Pre-FIRM”) or January 1, 1975, Pre-FIRM subsidized policies will see a 25% increase until what NFIP calls the “full rate” (as determined by an elevation certificate) is reached.


This change replaces the Preferred Risk Policy (PRP) Eligibility Extension program. Rather than being able to keep the PRP indefinitely, the rate will be the same the first year after the property is not in a preferred zone. After the first year, rates will increase at the current 18% cap until the full actuarial rate is reached.


This is a significant change!

Under this new rule, if a NFIP policy lapses for 90 or more days and the policyholder wants to go back to the NFIP, they will not be able to go back at a subsidized rate and will be forced to obtain an elevation certificate and use the full rate. Additionally, you might lose grandfathering, depending on Pre-FIRM or Post-FIRM status. Although very few private insurers offer flood insurance, it is very important to understand NFIP’s new rule on this point if one ever were to leave the NFIP program for a private flood policy and then wanted, or needed, to return to the NFIP sponsored company.


Currently, if a rating error is discovered NFIP only collects the correct premium prospectively. However, effective April 1st, if the rating error is discovered after a loss, the correct premium will be calculated for the entire current policy. If that premium is paid within 30 days, coverage remains the same. If not paid, coverage is reduced (reformation) to a lower amount.  When there is no loss in the current policy term, and the discovery of a misrating occurs within 60 days prior to a prospective renewal (after the first renewal offer has already been made), the correction will be made effective the date of the prospective renewal.


The $25 surcharge for single-family primary residences and the $250 surcharge for all other policies remains unchanged.


While there are no changes directly related to private flood insurance as of April 1st, it’s important to keep the issues related to a “lapse” under an NFIP policy in mind when considering options in the future. Such a lapse issue could cause some policyholders severe financial consequences. While a private insurer might offer various improvements such as; a) higher limits, b) one deductible, c) replacement cost coverage, d) additional living expense or business income, the cost to return to a NFIP-sponsored policy will be very costly if one ever need to do that (say, if  private insurers were to flee Florida  after a hurricane, as has happened many times in the wind market) in the future.


Speaking of private flood insurance; Some believe that certain federal regulations may be preventing the development of a private flood insurance market. The Flood Insurance Market Parity and Modernization Act, sponsored by Florida Congressmen Dennis Ross and Patrick Murphy, is intended to perhaps remove such barriers. Private competition in this market may, some suggest, lead to greater innovation and perhaps more affordable and comprehensive policies for consumers. Others fear that private flood insurers will be subject to financial collapse given the catastrophic volatility of losses insurers face when writing flood insurance, an ever growing concern as seas rise in our warming world. That’s one reason why the Federal program had to be created in the first place; private insurers tired of paying flood claims, abandoned the market nationally and thus the National Flood Insurance Program (NFIP) was created.

This proposed bipartisan legislation seeks to remove some of the barriers that are hindering consumers’ flood insurance options while also preserving protections for property owners who choose to leave the NFIP for the private market and wish to return. More details on the proposed law can be found in this column written by U.S. Rep. Dennis Ross and U.S. Rep. Patrick Murphy and published in the Sunshine State News.

For all of your flood insurance (and non-flood insurance) questions, please contact the Professional Agents and Underwriters here at Morris & Reynolds Insurance. As has been the case since 1950, we will be happy to simplify the complex world of Insurance as well as provide you with the most cost effective options available anywhere from the world’s leading insurers.

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