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Flood Reform act of 2012: BW/12:

The Biggert-Waters reform act of 2012 was designed to remove the artificially low rates that were no longer sustainable. The law passed by Congress and signed by the President in 2012 that extends the National Flood Insurance Program (NFIP) for five years, while requiring significant program reform.  The laws requires changes to all major components of the program, including flood insurance, flood hazard mapping, grants, and the management of floodplains.  Many of the changes are designed to make the NFIP more financially stable, and ensure that flood insurance rates more accurately reflect the real risk of flooding.  In other words for many consumers, their flood rates are going up.  Depending upon the date of construction, V zone properties increases will range from 11% to 17% every year.  A  Zones depending upon the date of construction and the type of A zone these will range from 6% to 16% every year.  X zones are admittedly not hit near as hard but depending upon the program they will range from 1% to 8%.

The 25% Club:

If you have a non-principal/non-primary residence on January 1 of 2013 you received your first 25% increase.  On  January 1 of 2014 Non-principal/non-primary residences will receive their next 25% increase.  On and on it will go. 

On October 1 of 2013 non-residential policies receive their first 25% increase.  On October 1 of 2014 they will receive their 2nd 25%. On and on it will go.

Subsidized rates:

Subsidized rates are to be phased out over time, however if coverage lapse or the home is sold everything changes.  If the home is sold the new owner will not receive the subsidized rate and will immediately pay the new full risk rate on the property.  If the current owner for whatever reason let their flood policy lapse they too will pay the new full risk rates.

Private Flood Option:

Biggert-Waters reform act is not all bad; it has opened the door for competition.  Biggert-Waters reform act has not only allowed private flood insurance it requires lenders to tell their borrowers that private flood insurance is available. The FDIC in a Financial Institution Letter dated March 29, 2013 address the issue of private flood insurance in the Biggert-Waters reform act. 

FDIC Statement on Private Flood Insurance:

“Private Flood Insurance: The mandatory purchase requirement has been amended to require lenders to accept private flood insurance policies as satisfaction of the mandatory purchase requirement  if the coverage provided by the private flood insurance satisfies the standards specified in the Act.  In addition, regulated lenders are required to disclose to borrower that:

Flood insurance under the National Flood Insurance Program is available from private insurance companies or from the NFIP directly; Flood insurance that provides the same level of coverage as an NFIP policy may be available from private insurance; and borrowers are encouraged to compare policies.”

In a memo from FEMA they state in part “One of the areas where this has caused a great deal of misunderstanding is the acceptability of private flood insurance policies to satisfy mandatory purchase requirements of the Flood Disaster Protection Act of 1973, as amended.  In providing assistance to lenders on the acceptability of private flood insurance policies in lieu of the Standard Flood Insurance Policy from the national Flood Insurance Program, the Guidelines list six elements that FEMA suggest that a lender consider in evaluation a private policy.”

FEMA’s Six Guidelines:

A)     Licensure :  the first requirement is that the issuing carrier be licensed, admitted, or otherwise approved to do business in the jurisdiction where the building is located

B)      Surplus Lines Recognition:  The second requirement is that when using surplus lines insurance, the insurer should be recognized or not disapproved as a surplus lines insurer by the insurance regulator of the jurisdiction where the building is located.

C)      Requirement of 45-Day Cancellation/Non-Renewal Notice:  The third requirement is that the private flood policy must include two features. First, it must include a 45 days’ written notice of cancellation or non-renewal to the insured which, (A) must be mailed to both the insured and the lender, and (B) must include information about the availability of NFIP flood insurance.  Second, the cancellation provisions must be as restrictive as the SFIP.

D)     Breadth of Policy Coverage:  The fourth requirement is that the private flood policy must “guarantee” that the flood insurance coverage is at least as broad as the coverage under the SFIP.

E)      Strength of Mortgage Interest Clause: The fifth requirement is that the mortgage interest clause in the private flood policy must be similar to the SFIP clause.

F)      Legal Recourse:  The sixth requirement is that the policy requires lawsuits to be filed within 1 year after the date of written denial of all or part of the claim.

Grandfathering Changes Expected in 2014:

The Act calls for a phase-out of discounts, including grandfathered rates, and a move to risk-based rates for most properties when the community adopts a new flood Insurance Rate Map.  So if you live in a community that adopts a new, updated Flood Insurance Rate Map (FIRM), discounts-including grandfathered rates—will be phased out.  This will happen gradually, with new rates increasing by 20% per year for five years. Implementation is anticipated in 2014.

For more information about the reform act go to http://www.floodsmart.gov/floodsmart/pages/bw-12.jsp


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