National Flood Insurance Program (NFIP)

Biggert-Waters Act 2012 (BW-12)NFIP Re-Authorization & Reform

KAMM Regional Training

February – March 2014

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Biggert-Waters 2012 (BW-12)What Everyone Needs to Know

• Flood risks are changing• Risks may have increased since the last maps

• Flood insurance rates will reflect those changes• With new maps, rates on many properties will rise

• Don’t rely on subsidized rates• Most subsidized rates for older properties will be eliminated

• Building & re-building higher lowers risk and can save money!• Consider flood insurance when making construction decisions

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BW-12: Overview

• Signed into law by President Obama on July 6, 2012

• Section 203 reauthorized the NFIP for 5 years, through 9/30/2017

• Other pertinent sections:– Section 205

– Section 207

• Establishes National Flood Mapping Program– $400 million annual authorization

• Routine rate revisions will include a 5% assessment to build a catastrophic reserve fund

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Pre-FIRM:Built before 12-31-1974 or the community’s first FIRM became effective and has not been substantially damaged or improved

Sections 205 and 207 ImpactsSection 205

Impacts Pre-FIRM rated buildings in A, V, D zones:

• Non-Primary Residences• Businesses• Severe/Multiple Losses• Newly purchased building

or policy, lapsed policy

Implementation began January 1, 2013

Section 207

Impacts map change rating options:

• Grandfathering• Preferred Risk Policy

Eligibility Extension

Not currently implemented –targeted for late 2014

Section 205 – Currently Being Implemented

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Targets: Pre-FIRM Rated Buildings in A, V, and D Flood Zones (except AR/A99)

25% Annual Increase For:1. Non-Primary residences (vacation & second homes)2. Non-Residential Structures (businesses) 3. Residential Severe Repetitive Loss (SRL) Buildings

Full Risk Rates Apply Immediately For:1. New policies applied for on or after July 6, 2012 2. Lapsed policies on or after October 4, 2012

Section 207

• Grandfathering will be phased out• Phase-out of grandfathering discounts for properties shown on FIRMs

that are updated

• New rates will be gradually phased in at 20% per year for five years

• Preferred Risk Policy (PRP) Eligibility Extension Changes– Premiums for properties mapped into SFHAs on or after October 1,

2008 and receiving the PRP Eligibility Extension will see average annual increase of 20 %

• Implementation in late 2014

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Where are people most affected by changing rates?

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Policyholder Subsidies

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KY NFIP Policyholders under Section 205(data as of 12/31/2012)

52%

13%

32%

3%

These policies are ot pre-FIRM subsidized. They arenot affected by Section 205 but may see routineannual rate increases.

These pre-FIRM non-primary residences, businessproperties, and Severe Repetitive Loss (SRL)properties will see 25 percent increases until thetrue risk premium is reached.

These pre-FIRM primary residences will retain theirsubsidies until sold to new owner, policy lapse, theproperty suffers severe, repetitive flood losses or anew policy is purchased.

These properties, which include pre-FIRM condosand multi-family properties, will not see immediateincreases.

Changes to Subsidized Rates

Non-Primary Residences

Secondary, vacation homes

Pre-FIRM commercial buildings

Repetitively damaged buildings (known as SRL properties) Includes buildings with cumulativeflood insurance payments that meet or exceed fair market value

Increase by 25% a year until they reach full-risk rates

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New Policies Issued at Full-Risk Rates After the sale/purchase of a property

Subsidized rates can no longer be assigned to the new owner

After a policy lapse Policyholders should know that allowing a policy to lapse could be

costly

When a new policy is issued Policies for buildings uninsured as of the date BW-12 was enacted

After substantial damage/improvement

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Historic Structures and BW-12

• Historical structures that are primary residences:

• Retain pre-FIRM subsidized rates until it is sold, policy lapses, new policy is issued, becomes severe repetitive loss

• Subject to annual rate adjustments and fee for Reserve Fund

• Must maintain continuous coverage

• Historical structures that are non-residential:

• Actuarial rates began October 1, 2013

• Substantial improvement /substantial damage –subject to full actuarial rates

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BW-12 Impact on NFIP Policies

• New and renewal policies will complete a new policy application to capture “Is this Insured’s Primary Residence –Y/N”• “Primary residence” is defined as the building the insured or the

insured’s spouse resides in for at least 80% of the 365 days following the policy effective date

• Supporting documentation will be required – FIRM, EC, LOMA, LOMR, etc.

• ECs required to rate all policies

• Required documentation to confirm continued eligibility for PRP policy (may require community sign-off)

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What About Today’s New Policies?

• Until specifically addressed as BW-12 is implemented, new and renewing policies are still eligible for:

• Pre-FIRM subsidies (except pre-FIRM non-primary residences, business properties and SRL properties)

• Subsidies eliminated when property is sold, policy lapses, repetitive flood losses occur or a new policy is purchased.

• Grandfathering

• Extension of Preferred Risk Policy Eligibility

• As implementation of BW-12 progresses, FEMA will clearly communicate when subsidies and discounts are no longer available

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BW-12 Bottom Line

• Elimination of subsidies and discounts could mean big increases for some property owners• Properties that do not meet current

requirements (e.g., below the current BFE) could see dramatic premium increases

• Properties that meet current requirements still could see increases if new maps show higher risk

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Mitigation Tips

Make sure your sump pump is properly working. Install a battery-operated backup generator.

Clear debris from gutters, downspouts and

nearby catch basins or grates.

Anchor any fuel tanks.

Raise your electrical components (switches, sockets, circuit breakers, and wiring) at least 12 inches above your home’s projected flood

elevation.

Place the furnace, water heater, washer/dryer on cement blocks at least 12 inches above the

projected flood elevation.

Cost Impact of Retrofitting and Elevation in Rebuilding

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Saving Money on Flood Insurance

• FEMA has programs to help owners reduce their risk and save money on flood insurance

• Community-wide discounts through the CRS program

• FEMA grant programs support rebuilding and relocating

• Use of higher deductibles to lower premium costs

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But the smartest way to save may be to build

higher…

The Economics of Elevation

With BW-12 many structures currently not elevation-rated will need to be

Elevating above the current BFE (as shown on the effective FIRM) offers premium savings today

Elevation at or above the BFE offers savings when new maps become effective

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Increased Cost of Compliance - ICC

For substantially damaged structures

Must be declared by local Floodplain Administrator

Up to $30,000 to bring structure into compliance

Must build to adopted local ordinance

ICC claim is separate from the flood damage claim filed

Requires a separate Notice of Loss from community

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Community Options & Actions

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• Join CRS Program

• Increase CRS Class Rating

• Be aware of potential mitigation grants

• Provide technical advice

o Elevation Certificates

o Building/rebuilding to reduce flood risk

CRS Program

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CRS Goals

1. Reduce flood damage to insurable property

2. Strengthen and support the insurance aspects of the NFIP

3. Encourage a comprehensive approach to floodplain management

CRS ProgramCRS Core Strategies

• Promote natural and beneficial functions of floodplains

• Increase understanding of risk

• Strengthen adoption and enforcement of disaster- resistant building codes

• Reduce liabilities to the NFIP Fund

• Improve disaster resiliency and sustainability of communities

• Integrate a “Whole Community” approach to addressing emergency management

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CRS Program

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Class Points SFHA Non-SFHA PRP

1 4,500 45% 10% 0

2 4,000 40% 10% 0

3 3,500 35% 10% 0

4 3,000 30% 10% 0

5 2,500 25% 10% 0

6 2,000 20% 10% 0

7 1,500 15% 5% 0

8 1,000 10% 5% 0

9 500 5% 5% 0

10 < 500 0 0 0

Outreach Delivery

• If property owners in your community are constructing or rebuilding in SFHAs:

• Let them know flood risk changes over time

• Inform them their building or rebuilding decisions now can affect their long-term flood insurance premiums

• Inform them elevating buildings and ensuring the right type of construction helps decrease risk and reduce flood insurance premiums

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Key Takeaways - Mitigation

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Understand the risk

Buy down the risk

Build safer, stronger & smarter

Collaborate & communicate the need to address your risk

LEARN YOUR RISK

STAY INSURED

GET INSURED

REDUCE YOUR RISK

RECAP: BW-12 Timeline

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DATE BW12 IMPLEMENTATION STEPS

July 6, 2012 BW12 becomes law; reauthorizes the NFIP for five years and requires FEMA to eliminate discounts and subsidies

January 1, 2013 Subsidized rates phased out for non-primary residences

February 2013 and ongoing FEMA issues additional guidance and details on BW12 implementation

October 1, 2013 Subsidized rates anticipated to phase out for business properties, SRL properties, and others. Move to full-risk rates after sale/purchase of property, substantial damage/improvement or policy lapse.

Planned late 2014 FEMA anticipates implementing phase-in of full risk rates for properties affected by map changes

New Developments

• Omnibus bill passed by Congress in 2014 doesn’t allow FEMA to spend federal money to implement Section 207 through September 30, 2014

– De facto delay until federal FY 2015

• 1/30/2014, Senate passed S. 1926 to delay implementation of Sections 205 and 207 for four years

– Still not passed into law

– Stay tuned…

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The House at 370 River Drive

1) Residential property

2) Located in a SFHA

3) Current owners have flood insurance

Let’s look at seven scenarios

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Scenario #1: Buying the House

THEN NOW

For Sale

Flood insurance required

Subsidized rates apply to pre-FIRM buildings

Lower “Grandfathered” rate continues to apply if policy is transferred to new owner

Flood insurance required

Full-risk rates apply, not pre-FIRM subsidized rates

Post-FIRM “Grandfathering”applies until/unless FIRM maps change

Plan ahead: consider flood risk as you plan and budget

Obtain an Elevation Certificate as soon as possible to learn your full-risk rate – you could save money

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Scenario #2: Selling the House

Avoid surprises at closing –let buyers know they will need flood insurance

Pre-FIRM Subsidized rates no longer apply; new owner will pay full-risk rate

Avoid surprises at closing –let buyers know they will need flood insurance

Help the buyer: assign your policy so the new owner can continue to receive any subsidized or discounted rate

THEN NOW

New owner can often keep post-FIRM “Grandfathered” rate, until next map change

Consider getting an EC and show flood insurance costs – risk and rates could be lower than anticipated and allows potential buyer to understand expenses

Consider mitigating, including elevating, before listing the home for sale

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Scenario #3: Building / Rebuilding a New Home in a SFHA

Be aware of building in a high-risk flood zone

Need to build to current building code requirements

Flood insurance premium will be based on elevation at or above FEMA’s minimum elevation standard; the community’s standard might be higher

Be aware of building in a high-risk flood zone

Flood risk changes over time, so consider current and future flood risks

Build higher/stronger than current standards to lower flood risk and insurance premiums

Talk to local floodplain manager to learn about new maps or data that may be available

Building higher may increase home value

THEN NOW

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Scenario #4: Policy Renewal(Full-Risk or Grandfathered)

Renew the policy at the same rate

Rates subject to routine actuarial adjustment

Renew the policy at the same (full-risk) rate

Rates subject to routine actuarial adjustment plus increase for the Reserve Fund

If Grandfathered, talk to your agent to learn your current risk

THEN NOW

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Scenario #5: Policy Renewal Pre-FIRM (Subsidized) Primary Home

Don’t get caught without coverage in a disaster; stay fully insured

Renew flood insurance policy at the pre-FIRM (subsidized) rate

Pre-FIRM rates subject to routine actuarial adjustment

Retain subsidized rate as long as home is a primary residence and continuous coverage is maintained

Rates subject to routine actuarial adjustment plus increase for Reserve Fund

Full-risk rates will apply if the property sold or the policy lapses (effective October 2013)

THEN NOW

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Scenario #6: Policy Renewal (Subsidized) Secondary/SRL Home, Business Property

Don’t get caught without coverage in a disaster; stay insured

Renew flood insurance policy at the current (subsidized) rate

Rates subject to routine actuarial adjustment

Previous premium did not reflect the home’s full flood risk

Premium will increase 25 percent a year until it reaches the full-risk rate

Rates subject to routine actuarial adjustment plus increase for Reserve Fund

Obtain an Elevation Certificate as soon as possible to learn your full-risk rate –you could save money

THENNOW

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Scenario #7: Receiving Map Updates

New maps could identify that flood risk has changed

Buy flood insurance now to receive low preferred risk rates in moderate-to-low risk areas

Having a policy in place allows it to be “Grandfathered In” at a lower rate when maps are adopted

New maps could identify that flood risk has changed

As maps change, discounts, including Grandfathering, will be phased out

New rates will be phased in at 20 % a year for five years

Implementation anticipated in 2014*

• May be delayed

THEN NOW

BW-12 Resources: FEMA.gov/BW12

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Website resources include:

• General BW-12 Information

• Quick references for real estate& insurance Professionals

• Information for State& Local Officials

• Information for home& business owners

• Informational videos for agents

Overview Information: Brochures and Fact Sheets

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Details on Rates and Rebuilding Options

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More BW-12 Resources

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FloodSmart.gov Subsidized Policies

by State and Countyhttp://bit.ly/15FuKbQ

Flood Insurance Manual –

http://www.fema.gov/flood-insurance-

manual

KAMM Webpage –

http://www.kymitigation.org/b-w-12/

Insurance & NFIP Training Info

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• NFIP Training offers workshops and webinars –http://www.nfipiservice.com/training/schedule_agents.html

• FEMA Flood Map Changes Course –http://www.h2opartnersusa.com/nfiptraining/mapping_changes.html

• Training is available through FEMA for insurance agents, adjusters and lenders - www.fema.gov/business/nfip/trainagt.shtm

• Sign up for agent training emails –https://public.govdelivery.com/accounts/USDHSFEMA/subscriber/new?topic_id=USDHSFEMA_212