Flood Insurance Premiums Increasing by 8%

On October 1, 2009, important changes to the National Flood Insurance Program (NFIP) will take effect. There will be an increase in rates, the standard deductibles will increase, and the basic insurance limits will increase. However, the total coverage available will stay at a $250,000 maximum. These combined changes will result in an average premium increase of 8 percent. The increases will apply only to policies that are written or renewed after October 1, 2009.

I'm going to include much of the detail from the FEMA announcement, so please bear with me. The increase in the minimum deductible and the rate increases are the most important aspects of this annoucement. It's also interesting that they are finally doing away with the paper maps.

For more information about the NFIP, please visit www.FloodSmart.gov.

The standard deductible of $500 is being discontinued for all properties. The new standard deductible for Post-FIRM (Flood Insurance Rate Map) properties will be $1,000 and Pre-FIRM properties will be $2,000. Owners of Pre-FIRM properties have the option to buy back the $1,000 deductible within 60 days of the renewal of their flood insurance policy. Otherwise, deductibles cannot be reduced midterm unless required by the mortgagee. It is important to remember that there is a 30-day waiting period unless it is a requirement for loan closing. In most cases the deductible is only a fraction of the average flood insurance claim, which can be substantial.

Just as with other lines of insurance with high claim potential, such as wind insurance, it is not unusual for minimum deductibles to increase to foster the soundness of the program. The NFIP's previous deductibles were in place for almost a decade. In taking inflation into consideration over time, the new standard deductibles being changed effective October 2009 are comparable in value to the previous deductibles when they were first established.

• The basic insurance limits are also increasing for all categories of buildings and contents:
• The basic limit for 1-4 Family Dwelling Coverage will increase from $50,000 to $60,000. Additional insurance limits are $190,000 for a total limit of $250,000.
• Other Residential Building Coverage basic limit will increase from $150,000 to $175,000 with additional insurance limits of $75,000 for a total limit of $250,000.
• Non-Residential Building Coverage will increase from $150,000 to $175,000 for the basic limit. Additional insurance limits are $325,000 for a total of $500,000.
• Residential Contents Coverage basic limit will increase from $20,000 to $25,000. Addition limits are $75,000 for a total insurance limit of $100,000.
• Non-Residential Contents Coverage basic limit will increase from $130,000 to $150,000. Additional insurance limits are $350,000 for a total insurance limit of $500,000.

The premium increases vary by Zone. V Zones are coastal high-velocity zones and will have larger rate increases as a result of the Heinz Center's Erosion Zone Study, which clearly indicates that current rates significantly underestimate the increasing hazard from steadily eroding coastlines. The premium increases by zones are as follows:

V Zones

V Zone premiums will increase 10 percent.

A Zones

A Zones, which are non-velocity zones that are primarily riverine zones, will increase by 8 to 10 percent.

• Post-Firm A1-A30 and AE Zones will increase 10 percent.
• Pre-FIRM AE Zones premiums will increase 10 percent to decrease the amount of subsidy in our Pre-FIRM rate.
• AO, AH, AOB, and AHB, which are shallow flooding zones, will have an 8 percent increase in premiums.
• Unnumbered A Zones, which are remote A Zones where elevations have not been determined, will have increase of 10 percent in premiums.
• A99 Zones, which are approved flood mitigation projects, e.g., levees still in the course of construction, and AR Zones will have premium increases of 10 percent.

X Zones and Miscellaneous

• X Zones, which are zones outside the Special Flood Hazard Area, will have an increase of 8 percent for a Standard Risk Policy and no increase in premiums for a Preferred Risk Policy (PRP).
• Mortgage Portfolio Protection Program (MPPP) will have an increase in
  premiums of 10 percent.

Discontinuance of Paper Flood Insurance Rate Maps

Effective October 1, 2009 FEMA will discontinue the distribution of paper maps. The paper maps will be replaced with Digital Flood Insurance Rate Maps (DFIRMs). Replacing the paper map products with digital versions is more environmentally friendly and will improve the usability of FEMA's flood hazard data. It also provides users with a more powerful tool for insurance activities and flood risk management.

Jeff Baxter - Mortgage Banking at the Beach