A Summary of the June 1, 2014, National Flood Insurance Program Changes
1. Change to
Maximum Coverage Limits (Section 100204)
In accordance with
Section 100204 of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12),
the maximum limits of building coverage available for non-condominium
residential buildings designed for use for five or more families (classified as
Other Residential buildings by the NFIP) will be increased to match the limits
of commercial and other non-residential properties insured under the Standard
Flood Insurance Policy (SFIP) General Property Form. This is an increase of available building
coverage from $250,000 per building to $500,000. The maximum contents coverage
for all policies covering Other Residential buildings will remain $100,000 per
policy. New premium combinations
reflecting this change to the maximum limits for multi-family dwellings have
been added to the Preferred Risk Policy (PRP) and PRP Eligibility Extension
premium tables (see Attachment B). The new coverage limits are available for
new business, renewals, or change endorsements that are effective on or after
June 1, 2014.
At least 90 days
prior to June 1, 2014, insurers must send the attached sample letter (see Attachment
C) to all Other Residential policyholders to inform them of the new maximum
limits. Insurers must also include a
message on the Renewal Notice advising affected policyholders that higher
limits are available.
2. Revised Primary
Residence Definition (Section 100205)
Section 100205 of
BW-12 requires FEMA to phase out Pre-FIRM subsidized rates for nonprimary residences.
On January 1, 2013, the NFIP began
implementing this provision using an 80-percent occupancy threshold. Effective
June 1, 2014, the NFIP will implement this provision by defining primary
residence to be 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.
To be eligible for
replacement cost under the SFIP, the dwelling must be the insured’s “principal residence”
(i.e., the insured must live in the dwelling for 80 percent of the 365 days
preceding the loss), and the dwelling must be insured 80 percent or more of its
full replacement cost or the maximum amount of insurance available under the
NFIP. If the dwelling only meets the definition of a “primary residence,” and
not the definition of “principal residence” in the SFIP, then any claim for
building damages will be paid using Actual Cash Value. References to “Principal Residence” will be
removed from the Flood Insurance Application, Preferred Risk Policy
Application, and General Change Endorsement forms. See Attachment C for the
revised forms.
At least 90 days
prior to the policy renewal date, insurers must send the attached notice (see Attachment
C) to all Pre-FIRM subsidized residential single-family dwelling policyholders (including
condominium unit owners) to inform them of the revised definition of primary residence
and the acceptable documentation needed to verify eligibility for the primary
residence Pre-FIRM subsidy. Acceptable documentation of primary residence
status includes the following:
·
Driver’s
license
·
Automobile
registration
·
Proof
of insurance for a vehicle
·
Voter’s
registration
·
Documents
showing where children attend school
·
Homestead
Tax Credit Form for Primary Residence
If the insurer does
not receive the required documentation, the policy must be renewed as a
nonprimary residence and will receive the phased-in rate increase required by
BW-12.
This change is for
new business and renewal Pre-FIRM subsidized residential single-family dwelling
(including condominium unit) policies that are effective on or after June 1,
2014. Midterm endorsements are permitted if the policy effective date is on or
after June 1, 2014.
3. Deductible
Changes (Section 100210)
In accordance with
Section 100210 of BW-12, FEMA is revising the minimum deductibles for the NFIP.
The changes to the minimum deductibles are available only for new business and renewal
policies that are effective on or after June 1, 2014. Insurers must advise
affected policyholders of the new minimum deductible option as part of the
renewal process, as all deductibles must comply with the new minimums. See
Attachment D for the revised deductible tables. The revised minimum deductibles
are as follows:
Full-Risk Rated Policies
·
Policies
rated with full-risk rates (Post-FIRM, Pre-FIRM elevation-rated, and all X-zone
rated policies) or in AR, AR dual, or A99 zones will have a minimum deductible
of $1,000 for building coverage and $1,000 for contents coverage if the
building coverage does not exceed $100,000.
·
Policies
rated with full-risk rates or in AR, AR dual or A99 zones will have a minimum deductible
of $1,250 for building coverage and $1,250 for contents coverage if the building
coverage exceeds $100,000.
Pre-FIRM Subsidized
Policies
·
Policies
rated with Pre-FIRM subsidized rates will have a minimum deductible of $1,500 for
building or contents coverage if the building coverage does not exceed
$100,000.
·
Policies
rated with Pre-FIRM subsidized rates will have a minimum deductible of $2,000 for
building or contents coverage if the building coverage exceeds $100,000.
Contents-Only
Policies
·
Contents-only
policies will use the same minimum deductibles that apply to building coverage
that does not exceed $100,000.
4. Maximum Coverage
Availability for Non-Residential and Residential Coverage and Only One Policy
Per Building (Excluding Residential Condominium Buildings) (Section 10228)
Excluding
residential condominium buildings, NFIP-insured buildings can have only one policy
with building coverage. Section 100228 of 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 to be paid to the
building owner. The law also reiterates that the maximum coverage available for
a residential 1-4 family building or condominium unit is $250,000 per policy.
The NFIP Application forms included in the October 1, 2013, Flood Insurance
Manual were updated to collect data specifying when a policy is held by a
tenant. If building coverage is purchased by a tenant, regardless of occupancy,
the landlord must be named on the policy. The SFIP prohibits duplicate building
coverage by the same insured. If building coverage is purchased by an owner,
tenants may be named as an additional insureds on the policy. The Application
includes a disclaimer stating that “building coverage benefits – except for a
residential condominium building – are not available if other building coverage
has been purchased by the applicant or any other party for the same building”
identified on the Application. This means that the NFIP will only pay for a
building loss under one policy where the owner is named on the policy.
For all policies
with a policy expiration date on or after June 1, 2014, at least 90 days prior
to the policy expiration date, insurers must send a notice (see Attachment C
for sample) to the insured and agent for all policies covering residential and
non-residential buildings where duplicate coverage is indicated. The insurer
must obtain the data added to the October 1, 2013, Application forms pertaining
to tenant coverage and building coverage purchased. The information collected
must be reported through the Transaction Record Reporting and Processing (TRRP)
Plan.
The NFIP will
provide insurers with a list of policies that indicate more than one policy for
building coverage may have been issued for the same address. The lists are
available on the insurers’ FTP site under the FTP folder ftpind/coxxxxx/duppol
with the file name of W2RPDUP1 and W2RPDUP2. These lists are not exhaustive.
Insurers are responsible for ensuring duplicate building policies are not
issued for the same building. Insurers must also include the building owner on
the policy and report the appropriate tenant information through the TRRP Plan.
If there is more than one building at the same property location, each building
must be uniquely identified. If there is more than one policy with building
coverage covering the same building, all but one of the policies must be
cancelled or endorsed to remove building coverage. If a duplicate policy is
inadvertently issued for the same building, the NFIP will pay the building
owner and any tenant(s) named on only one policy.
5. Policy
Disclosure (Section 100234)
Section 100234 of
BW-12 requires each NFIP policy to state the conditions, exclusions, and coverage
limitations in plain English, in boldface type, and in a font size that is
twice the size of the text of the body of the policy. This provision authorizes
the Administrator to impose a civil penalty of not more than $50,000 on any
person who fails to comply with this requirement.
Copies of the three
revised SFIP forms for use only by the NFIP Direct Servicing Agent are attached
to this bulletin (Attachment E). These policy forms use 9-point Arial and
18-point Arial Narrow fonts to comply with this provision of the law.
Compliant policies
must be sent to policyholders for all new policies effective on or after June
1, 2014, and upon the first renewal for existing policies on or after June 1,
2014. Under a separate cover, FEMA will provide generic versions of the three
SFIP forms for WYO company use. All policies must be issued under each WYO
company’s own name and be signed by a WYO company authorized representative.
The previously
printed versions of the SFIP forms contained minor variations from the forms promulgated
in the Code of Federal Regulations (CFR), 44 CFR 61, Appendices (1), (2), and
(3). Additional details on the
variations between the old forms and the CFR will be provided under separate
cover with the generic forms.
6. Changes to
Declarations Page Requirements
For all applicable
policies effective on or after June 1, 2014, the Declarations Pages must
display the following:
·
The
Declarations Pages for Pre-FIRM subsidized policies must state “Pre-FIRM Subsidized.”
This includes:
o
All
policies covering Pre-FIRM buildings rated without elevation data from an Elevation
Certificate and rated using zones Unnumbered A, AE, A1-A30, AH, AO, VE, and
V1-V30, and
o
All
policies effective prior to October 1, 2013, covering Pre-FIRM buildings in
zones Unnumbered V and D with original new business dates prior to July 6,
2012, and no lapse on or after October 4, 2012.
·
The
Declarations Pages for policies covering primary residences must state “Y” when
the policy covers 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. The name of the data element field is changed from
“Principal/Primary Residence” to “Primary Residence.”
7. Clarifications
Regarding Subsidy Elimination
When transitioning
a subsidized Pre-FIRM policy to a full-risk rate, insurers can use tentative rates
to rate a policy for one year only. The policy must then be renewed using the
information contained in an Elevation Certificate. When applying the tentative
rate procedure for an elevated Pre-FIRM building with enclosure, always use
“non-elevated/no-basement” building rates.
Tentative rates can
be used for one year to transition subsidized Pre-FIRM Residential Condominium
Building Association Policies (RCBAPs) to full-risk rates.
Use full-risk
(Post-FIRM) Increased Cost of Compliance premiums and deductible factors when applying
full-risk, tentative, or provisional rates to a Pre-FIRM building.
8. Clarification of
Grandfather Rating Procedures
For rating
purposes, an SFIP issued for a condominium unit under the Dwelling Form is independent
of the RCBAP. An SFIP issued for a condominium unit under the Dwelling Form may
not use the Declarations Page of an RCBAP to demonstrate eligibility for
Pre-FIRM subsidized premium rates or grandfather procedures.
9. Renewal Notice
Instructions
FEMA is requiring
companies to include a message on the back of the Renewal Notice about the advantage
of using certified mail to submit premium payments.