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Q&A: How upcoming National Flood Insurance Program changes will affect premiums

3 min read


The Federal Emergency Management Agency is preparing implement rate changes for policies under the National Flood Insurance Program. SmartBrief conducted a Q&A with John Dickson, president of NFS Edge Insurance, about the changes, which will begin to take effect April 1.

What is the main motivation for these NFIP changes, particularly the rate increases?

FEMA is working towards making the NFIP more actuarially sound, as required by legislation, through targeted rate increases. Additional changes are intended to address overall program solvency and the massive debt currently attached to the program. For example, the April 2016 PRP [preferred-risk policy] reserve-fund assessment increases are not part of the risk-bearing rates, which are moving towards more sound pricing, but rather are intended to help respond to overall program solvency issues.

Individual policy increases for pre-FIRM [flood insurance rate map] policies are limited to 18%, but total charges can sometimes exceed that amount, and some policies will see 25% increases annually until they reach full-risk rates. Which policyholders in which zones are likely to see the biggest impact, and what are some ways that agents might help them?

Pre-FIRM nonresidential business risks in SFHA [special flood hazard area] zones will be subject to 25% rate increases. Pre-FIRM non-primary residential risks in SFHA zones will be subject to 21% rate increases. Although these are substantial increases, it’s important that agents continue to advise their policyholders of the prevailing need for flood insurance coverage, either obtained through the NFIP or private options.

How will the changes affect lapsed policies and those written after April 1?

Certain pre-FIRM subsidized risks for which premium is received on or after April 1, 2016, that have lapsed and are reinstated more than 120 days after expiration (premium received more than 90 days after expiration, plus a 30-day waiting period) will no longer be able to be rated using subsidized rates. They will have to be written at the full actuarial rate.

Are private coverage options expanding, and how do they compare to policies written under the NFIP?

Yes, the number of private flood insurance options is increasing. Some private programs offer complementary coverage, providing the means to increase the limits offered by the NFIP as well as covering exposures excluded by the NFIP. Other private programs represent alternatives to the NFIP, offering primary flood insurance. Several private programs offer coverage that mirrors coverage provided by the NFIP. Not all private programs are identical. Agents and consumers should take time to conduct a thorough review and request details to enable an adequate comparison to the NFIP and other products.

Are private options viable for people with mortgages?

Today, private flood insurance is considered acceptable for people with mortgages if the product is no more restrictive than the NFIP. Those private products that strictly follow the NFIP terms and conditions generally satisfy this standard. However, lenders are charged with interpreting this requirement, and some of those interpretations differ. Most lenders accept most private flood insurance products, and some lenders endorse these programs as a means to save customers money and provide borrowers meaningful options.

[Editor’s note: The Flood Insurance Market Parity and Modernization Act, introduced in the House, is aimed at clarifying provisions of the 2012 Biggert-Waters Act to foster the use of private flood insurance when a homeowner’s mortgage requires such coverage.]