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Flood insurance reform: What does it mean? - The Galveston County Daily News: Business Review

December 7, 2016

Flood insurance reform: What does it mean?

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Posted: Saturday, October 12, 2013 12:00 am

Galveston Insurance Associates (GIA) knows that insurance is confusing. As policyholders and property owners who are also affected by Flood Insurance Reform, we understand your concerns.

In 1968, Congress created the National Flood Insurance Program (NFIP) to provide property owners with a means to financially protect themselves from property losses caused by flooding.  

In July 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12).  It requires NFIP rates to reflect the true risk of sustaining flood damage, make the program financially stable, and changes how Flood Insurance Rate Map (FIRM) updates impact policyholders.  

BW-12 is implemented in stages, each designed to eliminate “subsidies” (discounts) on flood insurance premiums.  Most of these subsidies are on properties that are Pre-FIRM.

Pre-FIRM buildings are those constructed or substantially improved on or before 12/31/1974 or the effective date of a community’s initial FIRM, whichever is latest.  Pre-FIRM buildings received subsidies so they wouldn’t be punished for not meeting the elevation (height) requirements set by the new program’s rate maps.  Post-FIRM property owners have always been required to provide Elevation Certificates to determine full-risk rates (based on flood zone & height requirements).  Pre-FIRM property owners had the option to use an Elevation Certificate if full-risk rates would cost less than subsidized rates.

1/1/13 — Annual renewal rate increases of 25% for pre-FIRM buildings apply to policies initially purchased before 7/6/12 starting with residences.  Exceptions: pre-FIRM primary residences (owner-occupied 80% or more each year) and Preferred Risk Policies.  These increases occur annually until full-risk rates, determined by use of an Elevation Certificate, are reached.   

• 10/1/13 — 5% Reserve Fund Fee assessment will apply annually to ALL POLICIES, excluding Preferred Risk Policies.  

• 10/1/13 — Business and Severe Repetitive Loss pre-FIRM properties receive 25% annual renewal increases. If there is a change in ownership or a policy lapses and is rewritten for these pre-FIRM buildings (primary residences included), full-risk rates immediately apply.

• 10/1/13 — Pre-FIRM policies newly written  or assumed/assigned due to a property purchase between 7/6/12 – 9/30/13 and lapsed policies reinstated after 10/4/12, will receive a nonrenewal notice at the first renewal.  A renewal application, Elevation Certificate with clear building exterior photos and payment of full-risk premium must be submitted to the insurance company to continue coverage.  

• 2014 — Phase in full-risk rates for all properties.  Flood map changes will require flood insurance premium adjustments to meet the flood zone and height requirements of the new/revised maps.  Premium increases will be phased in at 20% per year until full-risk rates have been reached.  “Grandfathering” by using older flood maps will no longer be allowed even though the building insured met the requirements of the map in effect at the time of construction.  It’s not too late to stop the 2014 changes.  Contact your Congressional Representatives ASAP!

Galveston Insurance www.gia-tx.com.