National May 1, 2014

PIA flood update: FEMA issues HIFAA flood memorandum

Late last week, the Federal Emergency Management Agency released Memorandum W-14016 regarding the Section 3 of the Homeowner Flood Insurance Affordability Act of 2014 (H.R.3370). The purpose of the update was to provide information pertaining to the implementation of the HFIAA revising the requirements and options for notifying policyholders of changes in premium resulting from restoring pre-Flood Insurance Rate Map subsidies for policyholders. It also provides for acceptance of a statement of primary residence. These changes take effect today. The major points of the memorandum allow for:

• A signed statement from the insured regarding primary residence when documentation of primary residence is not available. The statement would say: "The above address is my primary residence, and I and/or my spouse will live at this location for more than 50 percent of the 365 days following the policy effective date."

• Pre-FIRM rates are restored for the following properties:

• For those properties that were not insured when the Biggert-Waters Flood Reform Act of 2012 was enacted.
• For those pre-FIRM properties sold after Biggert-Waters Flood Reform Act of 2012 was enacted.
• For those pre-FIRM properties that were rated full-risk under the Biggert-Waters Flood Reform Act of 2012, due to a lapse in coverage.

• The elimination of the requirement of elevation certificates for those risks eligible for pre-FIRM subsidized rates.

• The act specifies that for those rollover or transfer of pre-FIRM policies, the insured need only show an expiring declarations page for verification of proof for pre-FIRM coverage.

• The act also prohibits from endorsing from a full-risk-rated policy with no claims, to a pre-FIRM-rated policy solely to generate a refund. FEMA will provide guidance for refunds through separate bulletins issued at a later date.

What this means to you

• The reform delays some premium increases. The new legislation, formally called the Homeowner Flood Insurance Affordability Act of 2014, resets many premiums to levels from before the 2012 Biggert-Waters reform. However, increases will still go into effect to bring charges into line with risk-just more slowly than intended. Your premiums for your primary residence will increase by at least 5 percent each year until you pay a full-risk rate. They may increase by more, provided the average increase in your flood zone isnt more than 20 percent. Premiums for your vacation home or business will continue to experience annual increases of around 25 percent until youre paying a full-risk rate.

• It reinstates grandfathering, which ended in 2012. Homeowners again have the ability to pass subsidized rates on to new owners when selling a home, although, the new owners will see premium increases over time. This is good news for your property values.

• It authorizes some refunds. Some homeowners who bought new policies in high-risk areas-and at full-risk rates-after 2012 are entitled to refunds. Those who were subject to more than 18 percent rate increases on policy renewals also may qualify.

• It creates a new annual fee. To offset the flood insurance programs loss of income from higher premiums, all policies will have an annual surcharge of $25 for primary residences and $250 for other policies until subsidies are eliminated. 

• Installments. It also requires installments be payable "annually or monthly" and that FEMA implement INSTALLMENT PAYMENT PROGRAMS WITHIN 18 MONTHS OF ENACTMENT.

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