BCAC & CONNECTICUT BANKERS ASSOCIATIONS FLOOD INSURANCE April 1, 2015 T om Young, CPCU, ARM

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3 April 1, 2015 Changes at a Glance Understanding Premium Caps Average Premium Increases Fees and Surcharges Minimum Deductibles Increased Optional Deductibles Property Newly Mapped Into the SFHA

4 April 1, 2015 Changes at a Glance (cont.) Transition to Full-Risk Rates Eligibility Misrating Substantially Improved Structures The Pre-FIRM Subsidized Rating Hierarchy Property Address Clarification Miscellaneous

5 Refresher on Subsidy Subsidized rates - less than anticipated losses and expenses Six groups of subsidized policyholders 1. Emergency Program policies 2. Pre-FIRM rated without elevation and rated in zones Unnumbered A, AE, A1-A30, AO, AH, V, V1-V30 and D 3. Policies rated in AR/AR Dual and A99 zones 4. Group Flood Insurance Policies (NFIP Direct only) 5. Post-FIRM ‘75-’81 V zone 6. The Newly Mapped Property into the SFHA (NEW!) Only Pre-FIRM subsidized was impacted by Section of BW-12

6 GRANDFATHERING Grandfathered policies rated in Zone X or with older EC information are not considered subsidized The rate does not necessarily reflect the property- specific risk of flood damage (BW-12 impacts to grandfathering were repealed) A policy can be both grandfathered and subsidized Impacts to grandfathering under BW-12 were repealed by HFIAA There is no change to the Pre-July 6, 2012 grandfather rules

7 BW-12 and HFIAA Background: Rates, Refunds and Surcharges Gradual Rate Increases Section 3 and Section 5 of the HFIAA return premium subsidies to some Pre-FIRM policies, Mandates that FEMA continue gradual Pre-FIRM subsidy elimination at no less than 5 percent per year. The Act prohibits increasing premiums by more than an average of 15 percent for any risk class and 18 percent for an individual policy (with some exceptions) Surcharges A new surcharge will be added to all policies to offset the slow- down of subsidy elimination and increase the solvency of the NFIP program

8 BW-12 and HFIAA Background: Rates, Refunds and Surcharges cont. There are exceptions to the 18% caps: Policies for the following properties will continue to see 25% average annual increases until they reach their full-risk rate: Pre-FIRM non-primary residences insured with subsidized rates; Pre-FIRM Severe Repetitive Loss Properties insured with subsidized rates; Pre-FIRM buildings that have been substantially improved after the local adoption of a FIRM; Pre-FIRM business properties insured with subsidized rates.

9 BW-12 and HFIAA Background: Rates, Refunds and Surcharges cont. Three reasons caps can be exceeded: Change to coverage amounts or deductibles Discovery of a misrating Downgrade to CRS class

10 UNDERSTANDING RATE CAPS 1. Step 1: (Basic x Rate/$100) + (Additional x Rate/$100) + (Contents Basic x Rate/$100) + (Contents Additional x Rate/$100) 2. Step 2: Apply Deductible Factor 3. Step 3: Add the Appropriate Increased Cost of Compliance (ICC) Premium 4. Step 4: Apply Community Rating System (CRS) Discount if applicable 5. Step 5: Apply the Reserve Fund Assessment (RFA) 6. Step 6: Add a Probation Surcharge if applicable 7. Step 7: Add the HFIAA Surcharge 8. Step 8: Add the Federal Policy Fee Under the law, the cap applies to steps 1-5, but not to 6-8. Administratively, we have treated all but step 7 as subject to the cap for April 2015 Note that all but steps 7 are done for you with the PRP and Newly Mapped Properties

11 AVERAGE PREMIUM INCREASES NFIP program-wide average - increase of 9.9% pre HFIAA surcharge, 19.8% with surcharge Pre-FIRM subsidized: Primary Residences 14%/15%, Non-Primary 24% before surcharge, 37% after. Full-Risk V zones: 9% before surcharge, 13% after Full-Risk AE, A1-A30: 9% before surcharge, 23% after AO, AH, AOB, and AHB: 10% before surcharge, 23% after Unnumbered A: 12% before surcharge, 21% after A99 and AR: 12% before surcharge, 19% after

12 AVERAGE PREMIUM INCREASES (cont.) X Zones Standard X-zone Rated: 11% before surcharge, 20% after PRP: -2% before surcharge, 14% after (Note premium decrease) PRP EE becomes Newly Mapped: -13% before surcharge, 7% after (Note premium decrease)

13 ASSESSMENT and FEES There is no change to the ICC premium The RFA was increased for all policies except the Group Flood Insurance Policy(GFIP) serviced by the NFIP Direct: For PRP’s, from 0% to 15% For Newly Mapped, introduced with 15% (compared to 0% for PRP EE, which had a higher premium before RFA) For all other policies, from 5% to 15% The FPF for the PRP remains $22, and all others increased to $45, including Newly Mapped. The FPF schedule for RCBAP was increased as well.

14 FLOOD INSURANCE ADVOCATE - Appointed on December 18, Interim Office - Present focus = Claims

15 MINIMUM DEDUCTIBLE BW-12 established new minimum deductibles first implemented October 1, 2013: Pre-FIRM subsidized $1,500 for building coverage up to $100,000 $2,000 for building coverage over $100,000 All others $1,000 for building coverage up to $100,000 $1,250 for building coverage over $100,000 For April 1, 2015, these minimum deductibles apply to the PRP and MPPP, where they were previously omitted (the GFIP remains the only exception).

16 HFIAA SURCHARGE The primary residence status for the HFIAA Surcharge should be validated in the following instances (this replaces validation for Pre-FIRM subsidized): All New Business transactions, including transfers (previous Declarations are unacceptable documentation of primary residence) All renewal business within one year of April 1, 2015 Upon Assignment At the time of loss (possible impacts to principal residence and eligibility for Replacement Cost coverage) For cause (e.g., discovery of potential misrating during an Operation Review)

17 HIGH DEDUCTIBLE OPTION A $10,000 deductible option- residential properties Separate $10,000 deductibles apply: building and contents Building and Contents can be sold separately A disclosure must be made at the time of application

18 Properties Newly Mapped into the SFHA: Introduction  Newly mapped property into the Special Flood Hazard Area (SHFA) from Non-SFHA - transition to a full- risk rate:  Eligible properties begin with a PRP premium (before fees and surcharges)  Add up to 18% per year to premium until full-risk rated  Full-risk may be property specific (using an EC and the current FIRM)  Full-risk may be grandfathered

19 Newly Mapped into the SFHA: Transition to Full-Risk Exceptions to the 18% caps: Change in coverage Misrating (including a change to rating factors, such as loss history) A downgrade to CRS does not impact Newly Mapped

20 Newly Mapped into the SFHA: Eligibility Newly mapped by map revision on or after April 1, 2015, and policy effective date is within 12 months of the map revision Policies validly issued under the PRP Eligibility Extension prior to April 1, 2015, may renew under the Newly Mapped procedure on the first effective date on or after April 1, 2015 Properties that would have been eligible for the PRP Eligibility Extension because they were newly mapped into the SFHA between October 1, 2008, and March 31, 2015, are eligible for the Newly Mapped procedure if they obtain coverage before April 1, 2016.

21 Other HFIAA Insurance Related Provisions:  Allows accounting for property specific flood mitigation, not part of building  Mandates FEMA develop an installment plan for non- escrowed flood insurance premium  Increases maximum deductibles  Encourages FEMA to minimize # of policies were premiums exceed 1% of coverage amount.  Lifts the $250,000 limit on amount FEMA can spend on reimbursement for successful map appeals based on scientific or technical error.

22 Other HFIAA Insurance Related Provisions:  Draft affordability framework – by National Academies of Sciences  Establish and fund National Flood Insurance Reserve Fund, at least 1% of total potential loss exposure.  Requires 10-year repayment plan – current insurance fund debt.  Clarifies Private Flood Insurance may satisfy flood insurance coverage subject to certain standards.  Amends RESPA to require explanation of availability of flood insurance under the NFIP or through private insurance.  Establishes Technical Mapping Advisory Council  Establishes an on-going National Flood Mapping Program

23 Biggert Water Act  Requires FEMA notify property owners and senators/house members who are affected by map changes  Authorization of $400 million for mapping per year  Formalize Scientific Resolution Panel to arbitrate when a community receives an unsatisfactory ruling, with respect to an appeal of a revised flood insurance rate map.  Removes state contributions limitation to update flood mapping.  Requires study of federal interagency coordination of flood mapping, including collection and utilization of data among all governmental users.

24 Biggert Water Act  Additional Key Items:  No longer allow exception to the 30-day waiting period for lender required flood policies. Only exceptions are:  Initial purchase of flood coverage in connection with the making, increasing, extension or renewal of a loan; or  Initial purchase of flood insurance coverage during the 13-month period beginning on the effected date of map revision, or  If Administrator determines property affected by flooding on Federal land tied to post-wildfire conditions; and  Flood coverage was purchased not later than 60 days after the fire containment date. .

25 New York Times: April 16, 2013 “In the coming years, tens of thousands of homeowners in the New York metropolitan area can expect to choose between elevating their homes, like the Hogans, and paying higher insurance rates for keeping them low.” Capozziello, Christopher. “Going Up a Few Feet, and Hoping to Avoid a Storm’s Path.” The New York Times. 15 Apr property.html?_r=1&

26 IMPORTANT BULLETINS W – April 1, 2015, Program Changes: W – Addendum to April 1, 2015, Program Changes: W – Clarifications Regarding Improvements and Betterments Coverage: W – Addendum 2 to the April 1, 2015, Program Changes:

27 Q&A

28 Contact Info  Thomas Young, CPCU, ARM National Flood Insurance Program - iService Team Bureau and Statistical Agency Manager - Region I New England PO Box Hooksett, NH Direct