1. No category

WILL COUNTY STORMWATER MANAGEMENT PLANNING COMMITTEE
58 E. Clinton Street, Suite 500
Joliet, IL 60432
V 815.740.8140 F 815.774.3386
Memo
To: Stormwater Committee Members
From: Derek O’Sullivan, Assistant Director
Date: 1/14/2014
Subject: Biggert-Waters Flood Insurance Reform Act of 2012
Below is a summary of a recent Webinar I participated in regarding the recent changes to the National
Flood Insurance Program. Specifically the Webinar focused on the Biggert-Waters Act 2012.
Biggert-Waters 2012 (BW-12)
• What Does it Do?
• Reauthorizes the National Flood Insurance
Program (NFIP) for 5 years through September
30, 2017
• Signed July 6, 2012
Why the Changes?
1. Improve long-term sustainability and
f inancial soundness
2. Respond to the rising costs and consequences of flooding
3. Encourage private
market participation
Chair
Scott Killinger, PE
District 12 Municipal
815.462.6450
Vice-Chair
Lee Ann Goodson
District 5 County
815-740-4602
Secretary
Randall Jessen
District 5 Municipal
815.436.3577
Director
815.740.8140
Related Definitions
Pre-FIRM Building:
Built before the community's first Flood Insurance Rate Map became
effective and not been substantially damaged or improved
Subsidized Rates:
Rates for pre-FIRM buildings that are in Zone D or in Zones A* and V
that are not rated with an elevation certificate**.
Full-risk Rates:
Rates for buildings that are elevation-rated and reflect the true flood risk
Non-primary residence:
A building that will be lived in for less than 80% of the policy year by
the policyholder
What is Changing for Pre-Firm
Subsidized rates to be phased out
• Non-primary residences
• Business properties
• Severe repetitive loss properties (1-4 family residences), and properties where claims
payments exceed fair market value
New policies to be issued at full-risk rates
• After the sale/purchase of a property
•After a lapse in insurance coverage
• After substantial damage/ improvement
• For properties uninsured as of BW-12 enactment
Phase Out of Subsidized Rates
Rates increase 25% per year for pre-FIRM buildings in SFHAs and
Zone D until they reflect full-risk rate
Effective January 1, 2013
•
Non-primary Residences
Effective October 1, 2013
•
Commercial buildings
•
Repetitively flooded buildings
o Severe Repetitive loss properties of 1-4 families
o Buildings with cumulative flood insurance
payments that meet or exceed fair ma
rket value that meet or exceed fair ma
rket value
•
•
•
Determining Full-Risk Rate
Obtain an Elevation Certificate (EC)
Ask their insurance agent to rate using EC
Estimate when 25% Phase-in = Full-Risk Premium
Direct Move to Full-Risk Rates
Effective October 1, 2013 for pre-FIRM buildings in SFHA and
Zone D
• After the sale/purchase of a property after 7/5/2012 Subsidized
rates can no longer be assigned to the new owner
• When a new policy is issued after 7/5/2012 Full-risk rates will be charged
•
After a policy lapse after 10/3/2012
Full-risk rates will be charged
•
Renewal letter cycle started in August
How is Will County Affected?
2062 Total Policies in Will County
Subsidized-Primary, keep
subsidies until sale, policy
lapse, severe or repeated
flooding
865
904
113
180
State
Name
Subsidized Policies (affected by 205)
Subsidized-NonPrimary,
Nonresidential, Rep Loss:
25%increase intil true risk
Subsidized- Condos & Multi
Family:No subsidy removal
planned
Illinois
Will County
1,197
Policies that are not subsidized (not affected by
205)
% of Policies Subsidized
58%
Subsidized Policies per 10k Housing Units
50.4
Population (County)
Housing Units (County)
865
677,560
237,501.00
Section 205 Summary
For pre-FIRM subsidized-rated buildings i n SFHA or Zone D:
• 25% Phase-in - non-primary residences, non­residential & SRL/repeated loss buildings
• Full-risk rate - newly purchased building, newly purchased policy, or lapsed policy
• Primary residence owners are not affected
unless/until:
• Building is sold
• Purchase a new policy
• Policy lapses
• Severe/repeated flood losses
• Refuse mitigation offer
•Note: Rates go up 16-17%
BW-12: EFFECTS ON INSURANCE SECTION
207
What About Grandfathering?
Per Section 100207,Grandfathering will be phased out
• Phase-in to full-risk rates at 20% a year for 5 years
• Implementation anticipated in late
2014, at the earliest
• PRP Eligibility Extension (PRP-EE)
will most likely be phased out.
Note: PRP-EE rates went up 19% starting October 1, 2013
Options & Actions
•
Property Owners (and insurance agents)
- Identify what full-risk rate is; get an EC
- Look into effect of higher deductibles
-Look into rate-reducing mitigation actions; e.g.
•
•
•
•
•
Add vents
Use Breakaway walls
Fill in/up enclosures
Elevate
Communities
-Join CRS/Increase CRS Rating
- Be aware of potential mitigation grants
- Provide technical advice
• Elevation Certificates
• Building/Rebuilding to reduce flood risk
Biggert-Waters Act 2012 (BW-12) Resources
• ASFPM BW-12 Resources
www.Floods.org
• FEMA BW-12 Site
www.FEMA.gov/BW12
• Interactive Map of Subsidized Policies
http://bit.ly/15FubQ
• Flood Insurance Resources
www.FloodSmart.gov/Partner
www.Floodsmart.gov/CRS
• NFIP Bulletins
www.NFIPiservice.com
CHANGES TO FLOOD
INSURANCE RATES
WHAT THEY ARE AND HOW
TO EXPLAIN THEM
The National Flood Insurance Program is changing. The BiggertWaters Flood Insurance Reform Act of 2012 (BW-12) reauthorized
the National Flood Insurance Program (NFIP) and outlined reforms
to make the program more sustainable, including the removal
of long-standing subsidies. The first phase of rate increases
(Section 100205) affects many policyholders who own homes
built before the community adopted its first Flood Insurance Rate
Map (FIRM). Many of these policyholders historically have paid
subsidized rates that do not reflect the property’s true risk.
WHO PAYS SUBSIDIZED RATES?
Roughly 20 percent of all NFIP policies are calculated
using subsidized rates. Most of those policies are pre-FIRM
properties—buildings constructed before the community
adopted its first FIRM—in high-risk areas (Zones A and V) and
undetermined-risk areas (Zone D). Certain pre-FIRM subsidies are
being phased out and eliminated by BW-12.
HOW AND WHEN WILL INCREASES
TAKE PLACE?
Beginning October 1, 2013, pre-FIRM subsidized rates change as
outlined below.
Premiums are increasing 25 percent each year until reaching
full-risk rates for:
• Severe Repetitive Loss properties
• Properties with cumulative paid flood losses exceeding fair
market value
• Non-primary residences (increase began January 1, 2013)
• Businesses/non-residential buildings
Policies are written or renewed at full-risk rates for:
• Property purchased on or after July 6, 2012
• New policies effective on or after July 6, 2012
• Lapsed policies reinstated on or after October 4, 2012
Owners of primary residences that do not fit any of the
categories above can keep their subsidized rates as long as they
own the property, but full-risk rates will apply for the next owner.
FROM SUBSIDIZED RATES
TO ELEVATION RATING
As subsidies are removed, Elevation Certificates (ECs) ultimately
will be necessary for all pre-FIRM property owners in high-risk
areas. Policyholders should get one as soon as they can to
know their full risk rate and consider mitigation options. In some
cases, the full-risk rates calculated using the EC could be lower
than the pre-FIRM subsidized rates. If so, the policy can be
adjusted to reflect the lower price. If the full-risk rate is higher,
you can continue to use the subsidized rates. The required timing
for obtaining an EC will vary.
• Required for next purchase/renewal: Policyholders
moving directly to full-risk rates as listed above.
• Recommended for next renewal: Policyholders
beginning 25 percent annual increases. The EC is
necessary to determine when the increases will reach the
full-risk rate.
• Recommended in the future: Policyholders keeping their
subsidy. The EC is necessary to calculate the full-risk rate
the current policyholder will pay if losing a subsidy or the
rate a new owner will pay if the building is sold.
WHAT TO KNOW, WHAT TO SAY
The chart below shows some of the scenarios people will face. The suggested talking points can serve as guidelines for working with
clients to help them understand BW-12 changes. Note: Scenarios assume the policyholder lives in a high-risk area and pays a
subsidized rate unless otherwise stated.
If Your Client Says…
What to Know
What to Say
My primary residence was built
in 1961. I’ve had a flood insurance policy since 1998, and
the home has never flooded.
Will my premium change?
Because it is a primary residence and no other triggers
have been hit, the subsidy remains in place.
You can keep your subsidized rate as long as your situation
does not change.
An EC is not required, but it would help the client think
about—and plan for—mitigation measures, such as
elevating the home.
Do not let your policy lapse. If you do, you will lose your
subsidy, and the new premium could be significantly higher.
If the full-risk rate is lower than the subsidized rate, you
should adjust the premium. If it is higher than the subsidized rate, you can continue using the subsidized rate.
I own a small shop built in
1960. I’ve had a flood insurance policy since I bought it
in 2003, and I’ve never made
a claim. Will my premium
change?
Subsidies are being removed for all business/non-residential properties. The policyholder’s premium will
increase 25 percent each year until it reaches the
full-risk rate.
We closed on a home in July
2013. It was built in 1962.
Our lender required flood insurance, and the previous owners
transferred their policy to us.
Will our rates change?
The property was purchased after the July 6, 2012, enactment of BW-12 and before the new rates took effect
on October 1, 2013. The policyholders will have to pay
the full-risk rate when they renew the policy in July 2014.
I don’t have a mortgage, so
I’m not required to have flood
insurance for my home that
was built in 1953. But I bought
a policy in November 2012,
just to be safe. Will my rates
change when I renew my policy
in 2013?
My home was built in 1959
and was mapped into a Zone A
in 2007. You had me buy a policy rated using Zone X before
the maps became effective,
and I was grandfathered into
that rate. I want to sell the
house. Will the new buyers
keep the grandfathered rate?
The policy can be renewed without an EC, but getting
one is recommended. It will be needed to determine the
full-risk rate.
An EC is required to renew the policy. Tentative rates can
be used for one year while the policyholder obtains an EC.
If a loss occurs, the policy must be re-rated using an EC
to determine the coverage based on the paid premium.
An EC is not required, but it would allow me to calculate the
rate you would pay if the subsidy were removed.
Your premium will increase 25 percent each year at renewal
until it reaches the full-risk rate for your property.
Look into getting an EC. The document will allow me to
calculate your full-risk rate and estimate when you will reach
it. If the full-risk rate is less than you currently pay, you can
begin paying the lower rate right away.
You will pay a new rate when you renew your policy in July
2014. This new premium will reflect the full-risk rate for your
property instead of the subsidized rate you currently pay.
You must get an EC. Your community officials might have
elevation information on file. If they don’t, you will need to
hire a surveyor to complete an EC for you.
Policies with effective dates on or after July 6, 2012,
move directly to full-risk rates at renewal on or after
October 1, 2013.
You will pay a new rate when you renew your policy this fall.
The new rate will reflect your true flood risk instead of the
subsidized rate you currently pay.
An EC is required to renew the policy. Tentative rates can
be used for one year while the policyholder obtains an EC.
If a loss occurs, the policy must be re-rated using an EC
to determine the coverage based on the paid premium.
You must get an EC. Your community officials might have
elevation information on file. If they don’t, you will need to
hire a surveyor to complete an EC for you.
Currently, as long as coverage is maintained, the policy
and rating can be assigned to the new owner because
the Zone X rate is not subsidized.
For now, you can assign the policy to the new owners,
and they will keep the grandfathered rate as long as they
maintain coverage.
FEMA has not implemented Section 100207 of BW-12
that will affect grandfathering. Implementation could
mean a change in rates if there is a map change.
In the future, FEMA will implement a provision that will
affect how rates change when flood maps are updated.
An Elevation Certificate is not required, but it would allow
me to calculate the rate you would pay if you no longer
had a grandfathered policy.
RESOURCES:
For additional information about flood insurance and new rate changes, use the resources listed below.
•
•
•
•
•
Flood Insurance Rate Maps: MSC.FEMA.gov
Biggert-Waters Flood Insurance Reform Act of 2012: FEMA.gov/BW12
Homeowner’s Guide to Elevation Certificates: FEMA.gov/library/viewRecord.do?id=7408
Talking to Customers About Flood Insurance: Agents.FloodSmart.gov
WYO Bulletins: NFIPiService.com
Biggert-Waters Flood Insurance Reform Act of 2012 (BW12) Timeline
Date of
Implementation
July 10, 2012
October 19, 2012
Who Is Affected
What Will Happen
Owners of property:
 that is affected by flooding on Federal land
caused, or exacerbated by, post-wildfire
conditions on Federal land, and
 who purchased flood insurance fewer than 30
days before the flood loss and within 60 days
of the fire containment date.
 Policyholders in the Missouri River Basin (ND,
SD, IA, NE, KS, MO) who had claims on a policy
purchased from May 1-June 6, 2011, and were
not damaged by flood for 30 days after
purchase date.


Homeowners with subsidized insurance rates
on non-primary residences
Properties receiving subsidized insurance rates
are those structures built prior to the first
Flood Insurance Rate Map (pre-FIRM
properties) that have not been substantially
damaged or improved.

Owners of business properties with
subsidized premiums
Owners of severe repetitive loss properties
consisting of 1-4 residences with subsidized
premiums.
Owners of any property that has incurred
flood-related damage in which the cumulative
amounts of claims payments exceeded the fair
market value of such property.


January 1, 2013


October 1, 2013


If a flood occurs under certain
conditions, an exception to
the 30-day waiting period is
implemented for a policy
purchased not later than 60
days after the fire
containment date.
When certain conditions are
met, an alternative effective
date for the policy or the
increased coverage is
established as the 30th day
after the policy purchase date,
without regard for the
otherwise applicable flood in
progress exclusion, for claims
denied based on Exclusion V.
25 percent increase in
premium rates each year until
premiums reflect full risk rates
Why Is It Changing





25 percent increase in
premium rates each year until
premiums reflect full risk rates


BW 12 Section 100241 created a
third exception to the 30-day
waiting period for insurance
coverage for private properties
affected by flooding from Federal
lands as a result of post-wildfire
conditions.
BW 12 Section 100227(b)
provides an alternative effective
date for qualifying policies that
had claims from flooding of the
Missouri River that started June
1, 2011.
BW 12 calls for the phase-out of
subsidies and discounts on flood
insurance premiums.
This premium increase is outlined
in Section 100205.
The phase out of subsidies
affecting non-primary residences
was also mandated by earlier
2012 legislation, HR 5740.
BW 12 calls for the phase-out of
subsidies and discounts on flood
insurance premiums.
These premium increases are
outlined in Section 100205.
Updated April 17, 2013
Biggert-Waters Flood Insurance Reform Act of 2012 (BW12) Timeline
When
October 1, 2013 cont.
Late 2014
Who Is Affected
Owners of property
 not insured as of the date of enactment of BW
12 (subject to a possible exception in Section
100207 of BW 12);
 with a lapsed NFIP policy;
 that has been purchased after the date of
enactment of BW 12.
 Other property owners, including nonsubsidized policyholders, affected by map
changes
What Will Happen

Full-risk rates will apply to
these policies.
Why Is It Changing




Full-risk rates will be phased
in over five years at a rate of
20 percent per year to reach
full risk rates.


BW 12 calls for the elimination of
subsidies and discounts on flood
insurance premiums.
These premium increases are
outlined in Section 100205.
BW 12 calls for the phase-out of
subsidies and discounts on flood
insurance premiums
This premium increase is outlined
in Section 100207.
Updated April 17, 2013