Last year, US congress passed the Biggert-Waters Act, calling on the Federal Emergency Management Agency (FEMA) and other agencies to make a number of changes to the way the current National Flood Insurance Plan operates. The act, which is commonly known as the Flood Insurance Reform Act, obliges insurance providers to amend rates to reflect true flood risk, thus making the program more financially stable.
Some of the changes brought on by the Flood Reform Act will become effective as of October 1. Bearing this in mind, it is important to know how you and your business continuity plan are affected by Flood Zone remapping.
Why remap?
There are a number of arguments for flood remapping, most of which were recognized by the government in its decision to pass the Biggert-Waters Act.
Flood hazard conditions are quite dynamic, and many National Flood Insurance Program (NFIP) maps may not reflect recent development and/or natural changes in the environment. Remapping allows for the ‘modernization’ of mapping, which means the Insurance Program can recognize these emerging risks. Similarly, more accurate risk information can be expected as a result of Map Modernization; this will help local citizens choose the appropriate amount of flood insurance to purchase.
Aside from emerging factors, the NFIP was largely self-sustaining until Katrina, which was about a $17B event. The annual revenue brought in through NFIP is about $3B per year. Under current subsidized and grandfathered rates, there was no way for NFIP to recoup its costs.
What does Flood Insurance Reform mean for me?
While some provisions of the Flood Insurance Reform Act are due to take effect in a matter of weeks, a House bill has been passed to delay some portions of the bill. With confusion rife over what the Biggert-Waters Act will immediately entail, we have outlined some of the key provisions of the act that you need to account for:
1) Phase-out of subsidized rates – Any building/dwelling built ‘pre-FIRM’ – before the Flood Insurance Rate Maps for that area were developed – did not have to get an elevation certificate. Without an elevation certificate, the address was provided a subsidized rate. This will no longer be the case; as an address located within a high-hazard zone MUST get an elevation certificate to develop the actuarial rates.
2) Changes to grandfathering – properties that carried flood insurance under an old zone-rating or Base Flood Elevation were allowed to grandfather those old zones for rating purposes. Under the Biggert-Waters Act however, these addresses will be actuarially rated.
...and what will happen come October 1?
1) Pre-FIRM policies will begin to see increases of up to 25% each year until the actuarial rate is reached.
2) Rate increases on other policies depend upon type of policy and Base Flood Elevations. This is a change from the current 10% rate increase cap per year.
3) A 5% surcharge will be added to all policies in order to facilitate the creation of a reserve fund.
What should I do now?
With some of the provisions of the Flood Insurance Reform Act due to take effect in the coming weeks, now is the time to consult your Insurance provider about your business continuity plan, study up on the new legislation and ensure your Business is protected against Flood Hazards and emerging flood risks.
