6 July 2013 | CIPR Newsle er

F F I I B -W F I R A 2012

By Sara Robben, NAIC Sta s cal Advisor and Brooke Stringer, NAIC Financial Policy and Legisla ve Advisor While state insurance departments regulate most types of insurance, the Na onal Flood Insurance Program (NFIP) is a federal program administered by the Federal Emergency Management Agency (FEMA). In July 2012, the U.S. Con-gress passed and President Barack Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12), which reauthorized the NFIP through Sept. 30, 2017, and made a number of reforms aimed at making the program more financially and structurally sound.1 Over the past year, a few of the provisions of BW-12 have been implemented, while others are being phased in over

me. The purpose of the legisla on is to change the way the NFIP operates and to raise rates to reflect true flood risk, as well as make the program more financially stable. BW-12 also involves changes regarding how Flood Insurance Rate Map (FIRM) updates impact policyholders. These changes will affect some—but not all—policyholders over

me. This ar cle focuses on implementa on of the changes required by the legisla on over the coming year. BW-12 K P R S C The first change resul ng from BW-12 was the crea on of an addi onal exemp on to the 30-day wai ng period for insurance coverage for private proper es affected by flooding from federal lands. This provision took effect shortly a er BW-12 was signed into law in July 2012. Sec-

on 100241 of BW-12 addresses property owners affected by flooding on federal land caused, or exacerbated by, post-wildfire condi ons. Under these circumstances, an excep on to the 30-day wai ng period is implemented for a policy purchased not later than 60 days a er the fire containment date.2 In light of the many wildfires in the United States in recent years, this change may prove to be important. Following this change, FEMA next began working on insur-ance premium adjustments designed to strengthen the fi-nancial solvency of the NFIP, as required by Sec on 100205 of BW-12. Beginning Jan. 1, 2013, a 25% increase in premi-um rates per year was put into place, and the increase is to con nue un l premiums reflect full-risk rates. This increase in premium rates affects homeowners with subsidized in-surance rates on non-primary residences. The increase also affects structures built prior to the first FIRM (pre-FIRM proper es), which receive subsidized rates. These are prop-er es that have not been substan ally damaged or im-proved. The phase out of subsidies affec ng non-primary

residences was also mandated by a previous NFIP extension bill that became law in May 2012.3 Sec on 100205 of BW-12 also addresses a phase-out of subsidies and discounts on flood insurance premiums for owners of business proper es with subsidized premiums; owners of severe repe ve loss proper es with subsidized premiums; and owners of any property that has incurred flood-related damage in which the cumula ve amounts of claim payments exceeded the fair market value of such property. These proper es will begin seeing a 25% increase in premium rates each year un l premiums reflect full risk rates. This subsidy phase-out is set to begin Oct. 1, 2013.4 Although BW-12 requires the elimina on of subsidies and discounts on flood insurance premiums, it also addresses policies that have lapsed or were not purchased prior to the enactment of the law. Beginning Oct. 1, 2013, full-risk rates will apply to owners of proper es that meet these criteria.5 BW-12 further requires the phase-out of subsidies and dis-counts on all flood insurance premiums. Sec on 100207 of BW-12 phases out grandfathered rates and moves to risk-based rates for most proper es when a community adopts a new FIRM. If a community adopts a new, updated FIRM, grandfathered rates will be phased out.6 These premium increases will be implemented in late 2014. To find out how a certain state will be affected, the NFIP has provided a Web page7 that shows the number of subsidized flood insurance policies by state and by county. Zooming out and then clicking on a state will provide a pop-up of the state breakdown of policyholders, and zooming in un l the county outlines appear will provide the breakdown for spe-cific coun es. Preliminary flood maps can be found at h p://hazards.fema.gov/femaportal/prelimdownload. In addi on to the premium changes, another provision in BW-12 designed to increase the fiscal soundness of the NFIP requires FEMA to build up a reserve fund to help cover loss-es in higher-than-average years. Most policyholders will see a new charge on their premiums to cover the reserve fund assessment. Ini ally, there will be a 5% assessment to all

(Continued on page 7)

1 For addi onal informa on on BW-12 please see: “Biggert-Waters Flood Insurance Reform Act of 2012,” CIPR Newsle er, October 2012. www.naic.org/cipr_newsle er_archive/vol5_biggert-waters_flood_reform_act_2012.pdf 2 P.L. 112-141, Sec. 100241. 3 P.L. 112-141, Sec. 100205. 4 P.L. 112-141, Sec. 100205. 5 Ibid 6 P.L. 112-141, Sec. 100207. 7 h p://bit.ly.15FuKbQ

July 2013 | CIPR Newsle er 7

B -W F I R A 2012 (C )

policies except preferred risk policies (PRPs). The reserve fund will increase over me and will also be assessed on PRPs at a future date. R C A BW-12 I As BW-12 implementa on moves forward, cons tuent con-cerns over flood insurance premium increases have prompt-ed some in Congress to pursue legisla ve efforts to delay implementa on of some of these reforms. Lawmakers from the Gulf Coast and the East Coast areas affected by Super-storm Sandy have been par cularly ac ve on this issue. As of June 2013, a total of seven pieces of legisla on have been introduced in the U.S. House of Representa ves and the U.S. Senate to delay the phasing in of higher flood insur-ance rates as required by BW-12.

While none of these specific bills have advanced in either chamber, during considera on of the House fiscal year 2014 Department of Homeland Security Appropria ons bill (H.R. 2217), an amendment by U.S. Rep. Bill Cassidy (R-LA) was adopted by a vote of 281-146 to delay, for one year, imple-menta on of Sec on 100207 of BW-12. The Senate Appro-pria ons Commi ee has approved its Homeland Security Appropria ons bill and included the same language as the House. The Senate bill now awaits floor ac on by the full Senate. An annual appropria ons bill only covers one year, so this does not mean that FEMA would be permanently prohibited from implemen ng this provision. In addi on, the Senate Banking Commi ee is expected to hold a hear-ing this summer with FEMA’s Director Craig Fugate to dis-cuss the impact of implementa on of BW-12’s reforms.

Save the Date

CIPR SUMMIT:

EXPLORING INSURERS’ LIABILITIES

Tuesday, August 27, 2013

10:00 AM - 2:30 PM

During the NAIC Summer National Meeting in Indianapolis, IN

Please visit the CIPR Events Page for the latest information: www.naic.org/cipr_events.htm

July 2013 | CIPR Newsle er 31

© Copyright 2013 Na onal Associa on of Insurance Commissioners, all rights reserved. The Na onal Associa on of Insurance Commissioners (NAIC) is the U.S. standard-se ng and regulatory support organiza on created and gov-erned by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best prac ces, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collec ve views of state regulators domes cally and interna onally. NAIC members, together with the central re-sources of the NAIC, form the na onal system of state-based insurance regula on in the U.S. For more informa on, visit www.naic.org. The views expressed in this publica on do not necessarily represent the views of NAIC, its officers or members. All informa on contained in this document is obtained from sources believed by the NAIC to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such informa on is provided “as is” without warranty of any kind. NO WARRANTY IS MADE, EXPRESS OR IM-PLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OPINION OR INFORMATION GIVEN OR MADE IN THIS PUBLICATION. This publica on is provided solely to subscribers and then solely in connec on with and in furtherance of the regulatory purposes and objec ves of the NAIC and state insurance regula on. Data or informa on discussed or shown may be confiden al and or proprietary. Further distribu on of this publica on by the recipient to anyone is strictly prohibited. Anyone desiring to become a subscriber should contact the Center for Insur-ance Policy and Research Department directly.

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