In its recently released Bulletin W15016, the Federal Emergency Management Agency (FEMA) detailed additional changes to the National Flood Insurance Program (NFIP), effective November 1, 2015. Key program changes include the following:
- Implementation of a procedure to identify business properties in order to implement the 25-percent annual premium increases on Pre-FIRM subsidized business properties;
- Reformatting of rate tables to identify business rates and incorporation into the Flood Insurance Manual of additional rates for buildings with the lowest floor below the Base Flood Elevation;
- Changes to certain flood insurance underwriting forms to capture additional data elements;
- Expanded instructions for the Floodproofing Certificate for Non-Residential Structures, also used for business properties;
- Revisions to the endorsement and cancellation rules on prior term refunds; and
- New reporting requirement for Mortgage Portfolio Protection Program policies.
In summary, the changes implement new rules and rates for commercial properties. While some changes are administrative, most notably, they signal the phase-out of Pre-FIRM subsidized rates and the 2016 application of 25 percent annual increases. They will have a significant impact on the price commercial property owners pay for flood coverage.
Pre-FIRM subsidized rates – afforded to buildings for which construction or substantial improvement occurred on or before December 31, 1974, or before the effective date of an initial Flood Insurance Rate Map (FIRM) – have long been the topic of contentious debate. A mandate of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) sought to rate actuarially Pre-FIRM buildings; but a public and legislative outcry resulted in the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA). HFIAA repealed and modified certain provisions of the 2012 legislation, giving both residential and non-residential property owners of Pre-FIRM buildings a reprieve. The November 2015 change ends this temporary provision for business properties and initiates the path to full actuarial rates.
With the looming change to Pre-FIRM subsidized rates for business properties, elevation data that is current and accurate is critically important. The data, located on an Elevation Certificate (EC), allows commercial property owners, their insurance agents or brokers to properly assess high-risk flood zone classifications and to rate policies accordingly. Relying upon an outdated elevation certificate may not reflect building improvements or uncover documentation errors or omissions that make a considerable difference in the amount paid for coverage or measures implemented to mitigate flood damage.
If you own commercial property subject to lender imposed flood insurance requirements and previously utilized Pre-FIRM subsidized rates, take a moment to review these most recent NFIP changes with your insurance agent or broker. Consider obtaining a new elevation certificate. Do not leave your high-risk flood zone designation to chance. An educated decision about flood risk protects property, saves money and increases real estate values.