NFIP Rates are Going Up on April 1… But Do Enough People Care for Congress to Change its Mind?

March 29, 2016
Scott L. Shapiro

Flood Insurance. ProgramjpgPeople definitely care. But not enough people are likely to care to make a political issue out of it due to how the rate increases were designed. The National Flood Insurance Program (NFIP) rate increases called for by the last two acts of Congress are designed as slow and modest increases for the vast majority of folks holding policies. Indeed, this appears to be the reason Congress passed the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), in order to amend and soften the rate increases called for by the Biggert-Waters Flood Insurance Reform Act of 2012. During this current election year it takes a lot to get Congress focused on action, and the rate increases do not appear to fall on a large enough group to generate the noise that gets Congress' attention. Added to that, the Republican Party is currently focused on demonstrating fiscal restraint, and rate increases designed to repay an approximately $20 billion deficit fit right into the current messaging.

I think that the following headline would have gotten the attention of people and politicians and possibly caused Congress to change its mind: "NFIP rates for homes to grow more than 20% a year!" However, that is only a true statement for non-primary residences located in AE and VE zones that were constructed before the first NFIP flood insurance rate map (FIRM) issued for the relevant region (so called "pre-FIRM" structures). A pretty small group of folks would be affected by this. Or perhaps a headline like: "25% annual rate increases by FEMA will apply to businesses!" But that is only a true statement for businesses located in AE and VE zones that were also constructed before the first NFIP flood insurance rate map issued for the relevant region. Again, a small group of folks to lobby Congress.

So what about the millions of folks who have policies? Well, this headline likely won't carry the day or mobilize the masses: "FEMA limits rate increases to 3% for homes." This statement is as true as the others, but it applies only to standard-rated residential policies for structures located in X zones. So what is the apparent lesson learned? When trying to raise money to pay off a Federal deficit, focus on a small enough group to not generate too large of a backlash? Or perhaps, this is more like the old adage about the frog and the pot of boiling water: if you put a frog in a pot of boiling water, it will feel the heat and jump out. But if you put a frog in a pot of cool water and slowly raise the temperature, the frog will never know what hit it.

Here is a summary of the rate changes going into effect on April 1, 2016. You can gather additional information from this FEMA site.

Pre-FIRM Subsidized Policies (AE Zones and VE Zones)

  • Primary Residences: The combined premium increase for all primary residence policies in these zones is 5 percent, with a total increase of 5 percent.
  • Non-Primary Residences: The combined premium increase for non-primary residence policies in these zones is 24 percent, with a total increase of 21 percent.

V Zones (coastal high-velocity zones)

  • Rate increases are being implemented again this year as a result of the Heinz Center's Erosion Zone Study, which clearly indicates that current rates significantly underestimate the increasing hazard from steadily eroding coastlines.
  • Post-FIRM V Zones: Premiums will increase 10 percent, with a total increase of 9 percent.

A Zones (non-velocity zones, which are primarily riverine zones)

  • Post-FIRM A1-A30 and AE Zones: Premiums will increase 9 percent, with a total increase of 8 percent.
  • AO, AH, AOB, and AHB Zones (shallow flooding zones): Premiums will increase 4 percent, with a total increase of 4 percent.
  • Unnumbered A Zones (remote A Zones where elevations have not been determined): Premiums will increase 13 percent, with a total increase of 12 percent.
  • A99 Zones (i.e., flood protection systems still in the process of being constructed) and AR Zones: Premiums will increase 4 percent, with a total increase of 4 percent.

X Zones (zones outside the Special Flood Hazard Area)

  • Standard-Rated Policies: Premiums will increase 3 percent, with a total increase of 3 percent.
  • Preferred Risk Policies (PRPs) (policies on buildings that are currently mapped outside the SFHA): Premiums will decrease an average of 5 percent, but overall the average amount charged these policyholders will increase 4 percent. The PRP tables are reformatted to clarify the distinction between the base premium, the ICC premium, the RFA, the HFIAA surcharge, and the FPF.
  • Policies for Properties Newly Mapped into the SFHA (includes the former PRP Eligibility Extension (PRP EE) policies): Premiums will decrease an average of 5 percent, but overall the average amount charged these policyholders will increase 4 percent. The Newly Mapped tables are reformatted to clarify the distinction between the base premium and the ICC premium. FEMA is ntroducing a multiplier to be used to correctly apply annual increases to the base premium before adding the ICC premium. The RFA will be added after the ICC premium, and this subtotal will be subject to the annual premium rate increase cap. The HFIAA surcharge, probation surcharge (if applicable), and the FPF will be added to the premium; they are not subject to the cap on annual premium rate increases.

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