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More Changes Coming to the National Flood Insurance Program What to Expect#This is an audio-enhanced PowerPoint presentation. To hear the audio, please open this presentation in Slide Show view.1More Changes Coming to the National Flood Insurance Program What to ExpectImpact of changes to the NFIP under Homeowner Flood Insurance Affordability Act of 2014

#Welcome and thank you for joining us.

This presentation will provide you information regarding the NFIP reform. These two laws caused changes to the NFIP , which could affect many stakeholders. First, we will review the Biggert-Waters Flood Insurance Reform Act of 2012 and then move into the Homeowner Flood Insurance Affordability Act of 2014 .2Biggert Waters Reform ActSection 205Targets:Non-Primary ResidencesBusinessesSevere Repetitive LossesNewly purchased building or policy, lapsed policy

Implementation began January 1, 2013

Section 207Impacts map changes:GrandfatheringPreferred Risk Policy Eligibility Extension

Replaced by Homeowner Flood Insurance Affordability Act 2014

#The Biggert-Waters NFIP Reform Act was signed into law on July 6, 2012. it is important to understand these two very important sections of this law, before we can understand what has changed with the Homeowner Flood Insurance Affordability Act.

When Bw-12 was enacted, it was decided that this law would be separated into two major sections instead of being implemented all at once.

First, lets discuss section 205 and which policies received immediate full risk rates and the ones that received the phase in of full risk rates. Keep in mind that these rate increases began on January 1, 2013.

So, If you newly purchased a Pre-FIRM building or flood policy, or, let your flood policy lapse on or after July 6th, 2012, You would have been required to be moved to full risk rates on your 2013 renewal. In other words, you would have needed to obtain an elevation certificate and be rated accordingly.

Now, lets discuss the phase in of full risk rates aspect of Section 205:

January 1, 2013 began with the phase in of full risk rates for Pre-FIRM non-primary residences. On their first renewal following this date, these policies began receiving a 25% increase in their flood insurance premium.On October 1, 2013, this was the date that began the phase in of full risk rates for Pre-FIRM Commercial and Severe Repetitive Loss policies.

Keep this section in mind as we move forward:

Section 207 was going to have a significant impact to the NFIP, because this section was going to phase out and eliminate the grandfather provision. This section has been removed and was replaced by Homeowner Flood Insurance Affordability Act 0f 2014.3Definition: Severe Repetitive Loss2 losses within a 10 year period exceeding the market value of the building, or 4 or more claims over $5,000 each in a 10 year period

Severe Repetitive Loss Buildings

#As a refresher, here is the official NFIP definition of a severe repetitive loss property:

2 losses within any 10 year period exceeding the market value of the building, or4 or more nfip claim payments over $5000 each in a 10 year period.4Homeowner Flood Insurance Affordability Act of 2014

Signed by President March 21, 2014

#Now, lets discuss the Homeowner Flood Insurance Affordability Act, that was signed into law by President Obama on March 21, 2014.

Its important to understand that this law repeals and modifies certain provisions of the Biggert-Waters Flood Insurance Reform Act and makes additional program changes to the NFIP

While FEMA actively works to implement the new law, we encourage policyholders to maintain and keep current flood insurance policies. FEMA does NOT recommend cancelling a flood insurance policy. Cancelling flood insurance policies now will leave policyholders unprotected during our flood and hurricane season and may cause policyholders to lose important discounts on their rate if they reinstate in the future.

The new law lowers the recent rate increases on some policies, prevents some future rate increases, and implements a surcharge on all policyholders. The Act also repeals certain rate increases that have already gone into effect and provides for refunds to those policyholders.

FEMA is working with Congress, the private Write Your Own insurance companies, and other stakeholders to implement these Congressionally mandated reforms and to working toward our shared goals of helping families maintain affordable flood insurance, ensuring the financial stability of the NFIP, and reducing the risks and consequences of flooding nationwide. FEMA will also continue to identify and publish special flood hazards and flood risk zones as authorized and required by Congress.

FEMAs initial priority was to assess potential changes to the NFIPs business processes and stop policy increases for certain subsidized policyholders as outlined in the Act. On April 15, 2014, FEMA issued a bulletin to its WYO companies directing them to begin using Pre-FIRM subsidized policy rates for all new business and renewals.

It is not possible for changes to happen immediately. While the new law does require some changes to be made retroactively, other changes require establishment of new programs, processes and procedures.5Flood Insurance Reform SummaryBW 12 Section 205 Still Moving Forward:

25% Annual Rate Increases for:Non-primary residencesBusinessesSevere Repetitive Loss Properties

HFIAA Section 3 Being Implemented beginning 05/1/14:

Reinstates Pre-FIRM subsidized rates for policies subject to full-risk rating under BW 12 Section 205 due to:New policy purchase on or after July 6, 2012Lapsed policy on or after October 4, 2012Policy assignmentsMandates refunds for some full risk rated policyholdersRepeals BW 12 Section 207

#Here is a summary that outlines some of the important facts about the reform act:

First, section 205 of BW-12 that implemented the phase in of full risk rates for Pre-FIRM non primary residences, businesses and SRL properties is still moving forward. These policies will still be receiving a 25% annual increase in their insurance rates, until they reach their full risk actuarial rate.

Now, what has changed, has to do with those pre-FIRM policies that were moved directly to full risk rates after January 1, 2013. These policies included the new building or policy purchase on or after July 6th, 2012, and the policies that had lapsed on or after October 4th, 2012. These policies will return to their Pre-FIRM subsidized rate and then see an annual rate increase of no more than 18%. These policyholders will be receiving information from their insurance company on how their refunds will be handled.6Refunds, Rates, and SurchargesApplies to all policiesA policy for a primary residence will include a $25 surcharge. All other policies will include a $250 surcharge. The fee will be included on all policies, including full-risk rated policies, until all Pre-FIRM subsidies are eliminated. Surcharges are not considered premium and are therefore not subject to premium increase caps required under Section 5 under the new Act.Mandatory Surcharges (Sec. 8)

#Now, we will discuss some of the other important changes that have occurred with the new reform act:

Starting in 2015, there will now be a surcharge added to all policies. This will include Pre-FIRM and Post-FIRM policies

If the policy is your primary residence, there will be a $25 surcharge. All other policies will have a $250 surcharge.7Refunds, Rates, and SurchargesSec. 29 requires FEMA to report to Congress on the effects the Pre-FIRM subsidy phase-outs and surcharge on small businesses, non-profits, houses of worship and certain residences. If FEMA determines the rate increases and surcharges are having a detrimental effect on affordability, FEMA must submit appropriate affordability recommendations to Congress.

Business properties are included within the non-residential policy class. FEMA is actively working to determine how best to identify and classify businesses within the category. Small Business (Sec. 29)HFIAA Impacts to Businesses

#Please pay attention to how the reform act refers to businesses:

All businesses, non-profits, houses of worship and certain residences, will all fall under the class of non-residential. FEMA is working on implementing a way to identify these different type of structures on the flood insurance application, but they will still be considered a non-residential property.

Also, as part of the affordability study, if FEMA determines these rates and surcharges are having an effect on affordability, they must submit appropriate recommendations to congress.8Refunds, Rates, and SurchargesThe Act permits FEMA to account for flood mitigation of the property in determining a full-risk rate. (Sec. 14) (Requires Rulemaking)The Act mandates that FEMA develop a monthly installment payment plan for non-escrowed flood insurance premiums, which will require changes to regulations and the Standard Flood Insurance Policy contract. (Sec. 11) (Requires Rulemaking)The Act increases maximum deductibles for residential properties. (Sec. 12)The Act encourages FEMA to minimize the number of policies where premiums exceed 1-percent of the coverage amount, and requires FEMA to report such premiums to Congress. (Sec. 7)Other Provisions

#Other provisions of the act require specific rule making. Some of these provisions are currently not in effect and will be implemented in the future:

The act increases maximum deductibles for residential structures. This provision went effective on June 1, 2014 and will be discussed on the next slide.

Also, it is the goal of the NFIP to minimize the number of policies where premiums exceed 1% of the coverage amount. For instance, if a policys coverage amount is $220,000, it is the goal to keep the policy premium to no more than $2,200. if FEMA finds that this task is difficult to attain, then they must report their findings and recommendations to congress.

Two provisions that have not yet been implemented and are still being reviewed, are listed in the first 2 bullet points. Flood mitigation, such as residential floodproofing, may now be taken into account when determining full-risk rates. FEMA is working dilligently to ensure this section is thought out to enable maximum benefits.

The monthly installment plan has been discussed for the last several years, and now it is in the law. This would enable policyholders to make monthly premium payments, if their insurance is not escrowed by their lender. As stated before, these two bullets will require specific rulemaking to be implemented.9Effective June 1, 2014 HFIAAOther Residential building limit increases to $500K; contents stays at $100K (BW 12 Sec 204)

Primary Residence redefined as insured living in home more than 50% of the policy year (BW 12 Sec 205)

#Effective June 1, 2014, the other residential policy limits have increased from $250,000 to $500,000. As far as contents coverage is concerned, these policies will remain with the $100,000 maximum.

Prior to the act, the definition of a primary residence was that the structure must be lived in at least 80% of the policy year. However, BW-12 and now the HFIAA adopted the IRS definition of having to be lived in at least 50% of the policy year. The NFIP and the WYO companies will be issuing letters to these primary residence policyholders, asking them for proof that they live in the home for 51% of the year. The letters will ask for a copy of their drivers license, or other legal documents that prove their eligibility to maintain their primary residence status.

10

Effective June 1, 2014 BW 12Minimum deductibles revised (BW 12 Sec. 210)

Maximum coverage clarified (BW 12 Sec 228)

Policy Disclosure (BW 12 Sec 234)

#As mentioned before, the new reform act also revised the minimum deductibles and also increased the maximum deductible for residential policies.

As you can see, if your coverage is $100,000 or less, the minimum deductible is $1500 for Pre-FIRM policies and $1000 for Post-FIRM policies. If the coverage amount is greater than $100,000, the minimum deductible is $2000 for Pre-FIRM and $1250 for Post-FIRM.

Maximum deductibles for residential structures has been increased from $5000 to $10,000. Keep in mind that if you have a lender, they will need to approve that the borrower is able to carry the maximum $10,000 deductible. The maximum deductible for non-residential structures has remained at $50,000.

If you notice, there is an additional bullet point for policy disclosure. This is referring to the new size and font of the flood insurance policy. 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 is to ensure that everyone understands what is covered and not covered, in their flood insurance policy.11Flood Insurance AdvocateEducates on: individual flood risks;flood mitigation; measures to reduce rates through effective mitigation; the rate map review and amendment process; changes in the program as a result of any newly enacted laws;Assists in understanding how to appeal preliminary rate maps and implementing measures to mitigate evolving flood risks;Coordinates outreach and education with local officials and community leaders in areas impacted by map amendments and revisions; andAids potential policy holders in obtaining and verifying accurate rate information when purchasing or renewing a policy.

#FLOOD INSURANCE ADVOCATEThe new law requires FEMA to designate a Flood Insurance Advocate to advocate for the fair treatment of NFIP policy holders.

FEMA has now begun to look at this piece of the legislation to ensure they capture the true role this advocate would have. This advocate may be a single individual based out of FEMA HQ, or they may place an advocate in each of the 10 FEMA Regions. Please stay tuned for more information regarding this important piece.

12When Maps ChangeHR3370 has changed language for map changesBuilt in compliance continues to have grandfather rates applyProperty moved into SFHA will be:Eligible for PRP-first yearSubsequent years increased by 25% until premium reaches standard X rating

#Now we will discuss map changes: As stated in earlier slides, Section 207 of BW-12 has been replaced by HFIAA 2014. This is very important because those structures that have built in compliance, are still able to obtain the grandfather provision. Keep in mind that these policies will need to meet the eligibility requirements and they are only able to grandfather the flood zone that was in effect at the time of construction, or the base flood elevation that was in effect. If the structure was substantially damaged or improved, then they will need to come into compliance with the current FIRM.

We also need to discuss what will happen when the structure has been moved from a low to moderate risk flood zone (zone X) to an SFHA (AE). As long as the structure has a limited loss history, they will be able to obtain the PRP for the first year, and then the policy will increase 25% per year until it reaches the standard X zone rate. This is a very important change that our stakeholders need to be aware of.

Just as before, as this policy begins to move toward the standard X zone rates, it is recommended that the policyholder consults with their insurance agent to see if obtaining an elevation certificate would be beneficial to them. 13MappingTechnical Mapping Advisory Council (TMAC) to review the new national flood mapping program activities authorized under the 2012 and 2014 flood insurance reform laws. FEMA will seek the TMACs recommendations on meeting new requirements for the new mapping program including the identification of residual risk areas, coastal flooding information, land subsidence, erosion, expected changes in flood hazards with time, and others. The law requires the Administrator to certify in writing to Congress that FEMA is utilizing technically credible data and mapping approaches.

Technical Mapping Advisory CouncilFEMA will continue Mapping activities BW-12 requires FEMA to enhance coordination with communities before and during mapping activities and requires FEMA to report certain information to members of Congress for each State and congressional district affected by preliminary maps.Sec. 30 of HFIAA requires additional layers of enhanced notification and outreach to congress and other stakeholders.

Enhanced Communication and Outreach

#MAPPINGThe Homeowner Flood Insurance Affordability Act requires the Technical Mapping Advisory Council (TMAC) to review the new national flood mapping program authorized under the 2012 and 2014 flood insurance reform laws. The law requires the Administrator to certify in writing to Congress that FEMA is utilizing technically credible data and mapping approaches. The law also requires FEMA to submit the TMAC review report to Congress.

FEMA will be looking to the TMAC for recommendations on how best to meet the legislatively mandated mapping requirements for the new mapping program including the identification of residual risk areas, coastal flooding information, land subsidence, erosion, expected changes in flood hazards with time, and others.

As the new national flood mapping program is being established, FEMA expects there will be opportunities to make incremental improvements to current procedures as it provides flood hazard data and information under the National Flood Insurance Program (NFIP). FEMA will make those improvements where necessary to ensure all ongoing changes to flood hazards continue to be effectively communicated, mitigated, and properly insured against.

The law requires FEMA to enhance coordination with communities before and during mapping activities and requires FEMA to report certain information to members of Congress for each State and congressional district affected by preliminary maps.

14MappingThe Act lifts the $250,000 limit on the amount FEMA can spend to implement a program to reimburse property owners and communities for successful map appeals based on a scientific or technical error. The Act applies to statutory appellants who successfully appeal the Agencys proposed flood elevations and special flood hazard areas. Rulemaking is required to implement this provisionThe new law does not apply to Letter of Map Amendment (LOMA) and Letter of Map Revision (LOMR) requests, or any expenses associated with them.

Flood Insurance Rate Map Appeals

#The law lifts the $250,000 limit on the amount that FEMA can spend to reimburse for successful map appeals based on a scientific or technical error.It is very important to understand that this piece of the legislation does not apply to letter of map Amendments or letter of map amendments based on fill. FEMA is currently working on guidance that addresses this piece, but federal rulemaking is required in order to implement this provision

15MappingAuthorizes FEMA to account for state and local funds used in the construction or restoration of a flood protection project when determining whether the project meets the statutory requirements to be eligible for discounted premiums. (Sec. 19)Permits FEMA to include the value of existing protection features in measuring adequate progress for the restoration of levees. (Sec. 19)

Flood Protection Systems

#FEMA is authorized to account for reconstruction or improvements of flood protection, not just new construction. It authorizes FEMA to consider the existing present value of a levee when assessing adequate progress for the reconstruction of an existing flood protection system. The law extends certain provisions related to NFIP requirements in areas restoring disaccredited flood protection systems to coastal levees and clarifies that the levee needs to be considered without regard to the level of federal funding for the original construction or the restoration.

16MappingLaw exempts mapping fees for flood map changes due to habitat restoration projects, dam removal, culvert re-design or installation, or the installation of fish passages. (Sec. 22)

Law requires FEMA to consider the effects of non-structural flood control features, such as dunes, and beach and wetland restoration when it maps the special flood hazard area. (Sec. 27)

FeesFlood Control Features

#When flood maps are due to be updated due to habitat restoration, dam removal, culvert re-design or installation, or installation of fish passages, the law exempt the mapping fees that are associated with these type of projects. Also, FEMA is required to consider the effects of non-structural flood control features, when they are mapped within a SFHA. These regulations are still under review and will be implemented at a future date.17Saving Money on Flood InsuranceFEMA has programs to help owners reduce their risk and save money on flood insuranceCommunity-wide discounts through the Community Rating System (CRS)FEMA grant programs support rebuilding and relocatingUse of higher deductibles to lower premium costs

But the smartest way to save may be to build higher

#Now that HFIAA has been enacted and moving forward, we need to be cognizant and aware of ways our stakeholders can reduce their risk as well as their flood insurance premium.

The first way is the Community Rating System. This is a voluntary program where communities are able to obtain credits for duties they already may perform. Some examples may include requiring and maintaining FEMA elevation certificates for structures in your area, or having flood insurance brochures and conducting outreach that promotes the benefits. These credits that you could obtain could mean significant flood insurance premium discounts. For more information regarding CRS, please see the link at the end of this presentation.

Another idea would be FEMA grants that may be available in your area. These grants could be used to support various mitigation activities such as elevation or even buy outs. You may contact your local community for more information regarding the grant programs.

Also, a policyholder may be able to increase their deductible to assist them with lowering their premium. As always, use caution with this, because a deductible will need to be paid in the event of a flood loss, and a high deductible could be burdensome.18Key Takeaways - Mitigation

#BW 12 provides an opportunity to have a discussion about mitigation:

Property Owners Need to Understand their Risk:2012 Flood Risk Survey:Only 31% think their community can floodOnly 12% think their home will ever flood regardless of where they live

Buy Flood InsuranceMany people believe that the standard homeowner or business owner policy covers them for floodMost people do not understand that disaster assistance is not the end all

Collaborate & Communicate Among our stakeholders and partnersWe know this is key to the programs success or failure.19Tools and Resources

#There are many tools and resources available that will assist you in counseling your clients on the effects of the NFIP Reform Act20ResourcesFlood Insurance Reform Act Webpage - http://www.fema.gov/flood-insurance-reformFloodSmart for Consumers - www.FloodSmart.govFloodSmart for Agents www.Agents.FloodSmart.govFlood Insurance Manual - http://www.fema.gov/flood-insurance-manualNFIP iService Bureau - http://www.nfipiservice.comCommunity Rating System- www.crsresources.org

#Here are some resources that you will find useful when sharing this message with your friends, family or clients.

Two that I want you to pay particular notice to are the first, the Flood Insurance Reform Act webpage, which is located at the top of your screen. This site is updated on a regular basis and will have the latest information regarding the Homeowner Flood Insurance Affordability Act.The last bullet point talking about the Community Rating system crsresources.org is a great website for you to learn more about this important program that can make your community more resilient.21

#Thank you so much!22