In July of 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012(BW-12). The two main purposes of the Act were to end the subsidies given to properties that were built before Flood Insurance Rate Maps (Pre-FIRM) were implemented in a given community, and to increase the fiscal soundness of the NFIP. The result was massive premium increases for many apartment owners in 2013. Multiple deals were tabled or abandoned due to the financial impact that flood premiums were having on a given property.
To soften the blow of the changes brought by Biggert, Congress passed the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). This Act repealed some of the rate increases the Pre-FIRM properties experienced and even offered refunds for some policy holders. New purchasers of Pre-FIRM properties were able to assume the current policies and rates of the prior owner, and rate increases were slowed. To offset the continued subsidizing of properties, a new HFIAA Surcharge of $25 for single family homes and $250 for most others including apartments, was added to all policies.
In June 2014, the NFIP increased the maximum available amount of building coverage for apartment buildings from $250,000 to $500,000. Many lenders are now requiring apartment owners to raise their NFIP limits to $500,000 to reflect the change. It is also very important to make sure that the excess flood policy wording matches up with the current level of NFIP to eliminate any coverage gaps.
Effective April 1, 2015 more changes were implemented to clarify the rate increases that all policy holders will experience, to start the HFIAA surcharges, and to establish a “Newly Mapped into High Risk Zones” (SFHA).
Breakdown of April 1, 2015 Changes
- Effective on all policies written or renewing 4/1/15 or later, a Reserve Fund Assessment (RFA) of 15% of premium will be charged on all policies except Preferred Risk Policies, which will receive a 10% assessment. This assessment helps cover the cost when claims exceed the premium collected by the NFIP.
- The Federal Policy Fee (FPF) charged to apartments per policy is $45 for all except Preferred Policies which will be $22.
- Pre-FIRM structures that have been Substantially Damaged or Improved and Severe Repetitive Loss Properties will receive annual increases of 25% until the reach full-risk rates.
Other Premium Increases
- The average Pre-FIRM premium increase including the HFIAA Surcharge and FPF is 23% for Zone A or V and 19% for Zone X.
- The average Post-FIRM premium increase including the HFIAA Surcharge and FPF is 23% for Zone A or V and 19% for Zone X.
- NFIP states that with some very limited exceptions, 18% is the most any individual policy will increase including the Reserve Fund Assessment. This maximum does not include the Surcharge or FPF.
Newly Mapped into High Risk Zones (SFHA).
- One of the results of the Biggert Act was a push to get property maps updated to assure proper classification of properties. With this, many locations have been moved to a less favorable flood zone.There is a one year rate relief available if a property was in a low hazard zone such as X and gets mapped to aSpecial Flood Hazard Area (SFHA) (A or V) on or after April 1, 2015. After the first year, the rates will increase no more than 18% until they reach full-risk rates. To be eligible:
- The property meets certain loss history requirements
- Coverage must be purchased within 1 year of the map revision and continuously maintained.
- If property was mapped to SFHA effective on or after October 1, 2008, and before April 1, 2015 and not currently insured under the NFIP, coverage must be purchased before April 1, 2016, and maintained continuously to receive the reduced rates.
Immediate Ways around Significantly Higher Premiums:
- Be particularly aware of locations that were built before 1980 and are located in Flood Zone A or V. Your agent should get a flood quote based on current elevation certificates and compare this to the current rates.
- Renovate structures to reflect guidelines set by the NFIP and do even more to reduce the risk of loss due to flooding.
- Consider the purchase of properties outside of the Special Flood Hazard Areas.
- Deal with an agent that has a thorough understanding of Flood issues.