The NFIP has released the next round of reforms to the flood program that will be implemented as of June 1, 2014 unless amended by Congress. Most of these changes were part of the Biggert Waters Flood Reform Act of 2012 and are summarized below.
Wright Flood will be hosting webinars in January to review these changes in detail and provide clarification.
NFIP Program Changes Effective June 1, 2014
1. Increase to the Maximum Building Coverage Limit for Other Residential Buildings (5 or more units) – but not Residential Condominium Building Association Policies (RCBAPs)
– Effective June 1, 2014, the maximum building coverage limits for Other Residential occupancies only (5 or more units) will be increasing from $250,000 to $500,000 per building. This coverage increase does NOT apply to condominium buildings rated as an RCBAP or to a condo unit-owner located in a residential condominium building which has 5 or more units.
– The maximum contents limit will remain at $100,000.
– A letter will be sent out to all policyholders who are eligible and their agents no later than March 3, 2014 informing them that they can increase their building coverage limits at any time on or after June 1, 2014. Don’t forget, there is a 30-day waiting period to increase coverage limits (unless in connections with a loan closing), therefore, if the policyholder wants the increase to be effective on June 1, 2014, the endorsement must be signed no later than May 2nd, and the signed endorsement and premium must be received at Wright Flood no later than May 11th for the increase to be effective on June 1st.
2. Deductible Changes:
The minimum deductible limits below will be implemented for all New Business and Renewals effective June 1, 2014 or later.
3. Policy Forms (Dwelling, General Property and Residential Condominium Building Association Policies):
Due to Section 100234 of the Biggert Waters Flood Insurance Reform Act of 2012, all conditions, exclusions and coverage limitation stated in each NFIP policy now must be in boldface type and with the font size twice the size of the body of the policy. The new forms must be sent to policyholders for all new business effective on or after June 1, 2014 and upon the first renewal for existing policies on or after June 1, 2014.
4. Renewal Notice Instructions:
Effective June 1, 2014, all renewal notices will include a message about the advantage of using certified mail to submit premium payments.
5. Clarification of Grandfathering Rating Procedures:
A policy for a condo unit-owner under the Dwelling form may NOT use an existing RCBAP policy for either grandfathering purposes or to show eligibility for continuing pre-FIRM subsidized rates.
6. Revised Primary Residence Definitions – For Rating Purposes (Not Claim Settlements), Pre-FIRM Subsidized policies:
Effective June 1, 2014, NFIP the definition of primary residence will be revised to, A building that will be lived in by the insured or the insured’s spouse for more than 50 percent of the 365 days following the policy effective date”. This definition will only affect pre-FIRM risks rated with subsidized rates effective June 1, 2014 (Renewals and including Rollovers/Renewal Conversion from one WYO to another effective on or after June 1, 2014).
Wright Flood will notify affected policyholders and their agents advising them of this change along with a listing of acceptable proof of primary residency.
7. One policy per building requirement:
Excluding residential condominium buildings, NFIP-insured buildings can have only one policy with building coverage. BW-12 clarifies that the total and aggregate liability for a non-residential building or non-condominium building designed for 5 or more families is $500,000 per structure and for a 1-4 family building or condominium unit it is $250,000 per policy.
If a tenant is purchasing building coverage, the building owner must be named on the policy.
NFIP will be providing a list to all Write Your Own Companies where NFIP indicates more than one policy for building coverage. Wright Flood will notify affected policyholders and their agents for clarification or amendment.
8. Tentative Rates:
When rating a Pre-FIRM risk based on full risk rating and the mandatory EC and pictures have not yet been provided, the policy may be rated using tentative rates for one year. If the Pre-FIRM building is elevated with an enclosure or crawlspace, use the non-elevated, no basement building rates.
Tentative rates can also be used to rate Pre-FIRM RCBAP policies pending receipt of the EC, Photos and replacement cost estimator.
9. Changes to the Declaration Pages:
This section affects the mandatory wording on the declaration pages. As of June 1, 2014, it must now state if the policy is rated based on Pre-FIRM subsidized rates and/or if the rating is based on the new “primary” residence definition.