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An overview of the 2013 changes and modifications to the National Flood Insurance Program (NFIP) presented at the September 4, 2013 Lunch and Learn at the Charleston Trident Association of REALTORS (CTAR)
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Flood Insurance: Changes to the Flood Insurance Program
that Realtors Should KnowAndrew Muller, CIC, AAI, PRISPrivate Client Insurance AdvisorMappus Insurance Agency, Inc.
843.763.4200www.MappusInsurance.com
Objectives Flood Insurance 101Flood insurance changes (BW-12)
and what realtors need to knowHow to help reduce flood insurance
premiums
The Basics
Flooding & Flood RisksAnywhere it rains, it can flood. Def: A flood is a general and temporary
condition where two or more acres of normally dry land or two or more properties are partially or fully inundated by water or mudflow…
EVERYONE is in a flood zone…it is just a matter of how severe or high hazard of a zone one is in.
Flood Insurance 101Coverage Limits: $250k for residential
buildings, $100k for contents. $500k for commercial buildings, $500k for commercial contents.
Replacement Cost is ONLY for single-family dwellings that are primary residences. Otherwise, you will receive an Actual Cash Value (ACV) settlement.
B, C & X zones are low hazard flood zones and you are not required to carry flood insurance if you have a federally backed mortgage
A & V Zones are high hazard zones and you are required to carry flood insurance if you have a federally-backed mortgage
Why Have Flood Insurance?To protect your assets from a lossTo meet requirements (mortgage holder)Flood coverage is ALWAYS excluded from
your home insurance policy…alwaysLiving in Coastal areas like the Lowcountry
present higher chances of a flood occurringWould you not carry fire insurance? Auto
liability insurance?
Flood Insurance Stats and FactsYou have a 26% chance of a flood occurring over the course
of a 30 year mortgage lifeThere is a 9% chance for a fire to occurYou are more likely to have a flood than your home
burglarizedYou are more likely to have a flood than your car stolen
90% of all Presidentially declared disasters involved flooding
Non-High Hazard Flood zones (X zones) represent 20% of all flood insurance claims
The average residential flood claim was $30,000 from 2007-2011
The average standard A Zone flood insurance policy costs about $600
Roughly 20% of all flood policies use subsidized rates yet cause the most claims payouts
How Are Rates Determined?Lots of factors determine flood insurance
rates. These include:flood zone (X, A & V Zones)
amount of coverage requested (i.e. $250,000 for Building)
location of structureage and design of structurebuilding occupancy (Residential, single family, multi
family)structure elevation if located in a Special Flood
Hazard Area (raised, slab, crawlspace…)
What is Biggert-Waters (BF-12) and What are they doing with the
Flood Insurance Program???
Biggert-Waters Reform Act of 2012Over the years, costs and consequences of
flooding have continued to increaseSuper Storm SandyHurricane KatrinaReconstruction Costs, Inflation…
For the NFIP to remain sustainable, the premium structure must reflect the true risks and costs of flooding
Proposed changes are designed to increase the fiscal soundness of the National Flood Insurance Program
What are Subsidized Rates?Reduced rates that are below the actuarially sound
rates that should be given to a specific propertyHelps provide affordable insurance to protect from
flood related lossesWithin the NFIP program, subsidized rates are most
commonly applied to structures built Pre-FIRMBuilt prior to 1975 in many communities;
Charleston County 1971 (joined NFIP) Dorchester County 1982 Berkeley County 1983
Built prior to the initial Flood Insurance Rate Map (FIRM) which varies by community
Changes Coming Down the PipelinePremium Increases (avg. 10% across the
board)No extension of subsidy for New Pre-FIRM
Policies or Lapsed Pre-FIRM policiesCurrent Pre-FIRM policies will start seeing
increases annually till the full risk rate is achievedWhat is the “full risk rate” you ask?
Elimination of No Waiting Period due to Lender Requirement (except for NEW home loans)
Premium IncreasesOverall average increase of 10%
25% premium increases for certain Pre-FIRM policiesNon-primary residencesSevere Repetitive Loss
(SRL) propertiesBusiness properties
V Zones
Post-FIRM = 11%Pre-FIRM = 17%
A ZonesPost-FIRM 6%Pre-FIRM AE zones =
16%X Zones
Standard rated policies = 8%
Preferred Risk Policies (PRP) = average of 1%
***NFIP has not given any specifics as to a ceiling on the level the rate will rise to, so anticipate these rates
to increase every year at this rate
What Qualifies For A Direct Move to Full-Risk Rates
After the sale/purchase of a propertySubsidized rates can no longer be assigned to the new
ownerAfter a policy lapse
Will be costly if this happens…don’t let it happenSometimes happens in error when a client moves but house
is still for saleNew policy is issued
Policies for buildings that are uninsured as of 7/6/12 or laterElevation Certificates
You also must present an elevation certificate to establish a basis. EC’s cost anywhere from $350-$750
Mappus Insurance has negotiated a special rate with Atlantic Surveying, Inc. Find coupon on our website.
30 Day Waiting PeriodImpacts policies where there is a loan on a
structure in a Special Flood Hazard Area (SFHA)Zones beginning with A or VLender determines a flood insurance policy has
not been issuedStructure owner is required to purchase a
flood insurance policy30 day waiting period will be imposed on these
new business policies***This does not affect NEW loans
How Can You Help Prepare Your Buyers and Sellers?
These new changes can dramatically affect the buying power for a home purchase AND the purchase priceGet an Elevation Certificate. KNOW WHAT
YOU & CLIENTS ARE BUYING Determines your Post-Firm rates Possibly a buying/selling feature
Contact a competent insurance agency immediately to work with your client
Always recommend flood insurance
Saving Money On Flood InsuranceUse of Higher DeductiblesCover Building ONLY, No Contents Consider Elevation (example on next page)Apply breakaway walls or openings/ventilation
(1 sq. in. per 1 sq. ft. of floor) Ensure all enclosure areas are for parking,
storage and building access ONLY. Cannot be furnished. If renovations have been made, verify with the
town/city that all permits, requirements and laws were followed. This can be very costly and an E&O claim against real estate agents.
Other Things To ComeGrandfathering will be going away in the future.
These are post-firm homes that were built to compliance at the time it was built but laws have changed since.
Their rates do not reflect current actuarial ratesDate is unknown but expected sometime in 2014.
Rates will be phased-inCould get delayed……
Flood zones are currently being remapped and are set to change in May 2015Could get delayed……
In ClosingGet an Elevation Certificate
Go to MappusInsurance.com for coupon
Work with a competent insurance agent
Create a great customer experience
How To Contact AndrewAndrew Muller, CIC, AAI, PRIS843.714.9389 Cell843.763.4200 [email protected]
Want to stay current on flood insurance and other home insurance tips and strategies for your clients
to help reduce their risks and premium? Email Andrew with the subject line “CTAR Flood
Presentation” and you will be entered to win a $50 Gift Card to Maverick Restaurant Group
What the Association of REALTORS® is doing:WORKING WITH U.S. HOUSE OF REPRESENTATIVES: With NAR’s support, Reps. Bill Cassidy (R-LA) and Maxine Waters (D-CA) have successfully passed out of the House an amendment to the Homeland Security Appropriations Bill to delay removal of “grandfathered” flood insurance rates for one year. This will provide FEMA with additional time to complete the “Biggert-Waters” affordability study and report to Congress on the impact of this and other rate reforms. Congressman Mark Sanford voted for the amendment.SENATE HAS YET TO ACT; DELAY IS NOT LAW
WORKING WITH U.S. SENATE: United States Senators Mary Landrieu (D-LA) and David Vitter (R-LA) are working with NAR to include the delay in the Senate version of the Homeland Security Appropriations Bill, and also expand it to include the other rate provisions effective October 1st which will start impacting home purchases later this year. Senate has not yet voted on amendment.
AMENDMENT FOR DELAY ONLY FOR GRANDFATHERING
The law’s other phase-outs -- for older second homes and business properties and for homes purchased after July 2012 – will continue to take effect on October 1, 2013. NAR is working on a longer delay and expanding it to include the other subsidy phase-outs, in addition to grandfathered properties.
MORE ON WHAT REALTOR® ASSOCIATION IS DOING FOR YOU:
FEMA is developing an affordability study in a report to Congress. NAR is working with FEMA to provide the data we receive from our survey. NAR successfully advocated for the study’s inclusion in the five year bill.
CITIES can lower their flood insurance premiums for their entire jurisdiction by sometimes just as simple as filling out paperwork through the Community Rating System (CRS). CTAR will be working with cities over the next year to ensure they’re doing all they can to improve their community rating.
CONGRESSIONAL STAFF SYMPOSIUM: NAR, in cooperation with the American Bankers Association and the National Association of Home Builders, held a flood insurance forum for Members of Congress and congressional staff. The purpose of the forum is to educate Congress on the coming changes required under the Biggert-Waters legislation and discuss legislative and regulatory options currently under discussion. COMPLETED
U.S. SENATE BANKING COMMITTEE: Conducted a hearing on the affordability of the NFIP rate provisions. COMPLETED
