Agent Breakout

What You and Your Clients Need to Know about Rising Risks, Rising Rates, and Their Effects on Rebuilding Decisions

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What We’ll Talk About

Questions and Concerns

BW-12

ABFEs and Building Higher

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Questions and Concerns

What are you hearing? What are you hoping to learn today?

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What Your Clients Need to Know Flood risks are changing.

Risks may have increased since the last maps.

Flood insurance rates will reflect those changes. With new maps, rates on many properties will rise.

You can no longer rely on subsidized rates.

Most subsidized rates for older properties will be eliminated.

Building or rebuilding higher lowers your risk and could save you money.

Consider flood insurance when making construction decisions.

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BW-12The Biggert-Waters Flood Insurance Reform Act

of 2012

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BW-12: What’s ChangingSubsidies to be phased out

Non-primary residences Business properties Severe repetitive loss properties (1-4 residences), and properties where

claims payments exceed fair market value

New policies to be issued at full-risk rates After the sale/purchase of a property After a lapse in insurance coverage After substantial damage/improvement For properties uninsured as of BW-12 enactment

Grandfathered rates planned to be phased out over 5 years

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Rates will increase 25 percent per year until they reflect the full-risk rate.

Changes effective January 1, 2013, at policy renewal

Pre-FIRM: Built before the community’s firstFlood Insurance Rate Map became effective and not been substantially damaged or improved

Non-primary residence: A building that will be lived in for less than 80 percent of the year

Changes for Non-Primary Residences

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Changes to Other Subsidized Rates

Rates on pre-FIRM commercial buildings Increase by 25% a year until they reach full-risk rates.

Rates for repetitively flooded buildings (known as Severe Repetitive Loss properties) of one to four residences increase 25% a year until they reach full-risk rates

Includes buildings with cumulative flood insurance payments that meet or exceed fair market value

These changes planned to start August 1, 2013

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Direct Move to Full-Risk Rates After the sale/purchase of a property

Subsidized rates can no longer be assigned to the new owner.

After a policy lapse Policyholders should know that allowing a policy to lapse could be costly.

When a new policy is issuedPolicies for buildings uninsured as of the date BW-12 was enacted

These changes also planned to start August 1, 2013

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What About Grandfathering? Grandfathering will be phased out

BW-12 calls for a phase-out of discounts, including grandfathering provisions, and a move to full actuarial rates

Section 100207 implementation anticipated in 2014Phase-in to full-risk rates anticipated to begin

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BW-12 TimelineDATE BW-12 IMPLEMENTATION STEP

July 6, 2012 BW-12 becomes law; reauthorizes the NFIP for five years and requires FEMA to eliminate discounts and subsidies

January 2013 Subsidized rates phased out for non-primary residences

February 2013 and ongoing

FEMA anticipates issuing additional guidance and details on BW-12 implementation

Planned August 2013 Subsidized rates anticipated to phase out for business properties, SRL properties, and others. Move to full-risk rates after sale/purchase of property, substantial damage/improvement or policy lapse.

Planned 2014 FEMA anticipates implementing phase-in of full risk rates for properties affected by map changes

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BW-12 Bottom Line The elimination of subsidies and discounts could

mean big increases for some property ownersProperties that do not meet current requirements (e.g., below the current Base Flood Elevation) could see rates increase dramatically.

Properties that meet current requirements still could see increases when new maps show higher risk

So how can you help clients save money?

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Saving Money on Flood Insurance FEMA has programs to help owners reduce their risk and save money on flood insurance

• Community-wide discounts through the Community Rating System (CRS)

• FEMA grant programs support rebuilding and relocating

• Use of higher deductibles to lower premium costs

But the smartest way to save may be to build higher

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Increased Cost of Compliance - ICC

Out of Compliance ICC claim is separate

from the flood damage claim filed

Requires a separateNotice of Loss from the community

Must build to adopted local ordinance; advisory data does not apply unless adopted

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How to Apply for ICC

Get an estimate for the project Submit estimate and

Substantial Damage Determination Letter

Adjuster will review 4 Years to complete project

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Elevation: Building at or above ABFEs

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Using ABFEs to Guide Decisions Advisory maps look much like

Flood Insurance Rate Maps (FIRMs) However, changes in elevation or zone

shown on advisory maps are not used for flood insurance rating

Advisory data do indicate the likely direction of future insurance requirements

ABFEs are a useful guide for rebuilding. However, your clients should realize that new maps could show even higher risk than shown on ABFEs

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The Economics of Elevation

With BW-12 many structures that currently are not elevation-rated will need to be

Elevating above the current BFE (as shown on the effective FIRM) offers premium savings today

Elevation at or above the ABFE offers savings when new maps become effective

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BW-12 and Rebuilding Decisions

Elevation lowers premiums.

“ZONE A” EXAMPLE

Elevating 3 feet above the BFE

could lower premiums

significantly!

Homes built below BFE could be hit

hard by an increase to full-risk rates

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BW-12 and Rebuilding Decisions Future insurance savings can offset higher construction costs. “ZONE V” EXAMPLE (ABFE SHOWS 4’ HIGHER RISK)

ELEVATION /COSTS

4 ft 8 ft 10 ft

Foundation $18,000 $29,000 $30,000

Flood Insurance/yr $17,500 $ 7,000 $ 3,500

Mortgage increase + flood/yr

$17,500 $ 7,588 $ 4148

Peace of Mind

Homeowner pockets more than

$13,000/year compared to the

current BFE

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Other “V” Zone Considerations

Waves exert tremendous force; buildings in “V” zones must offer minimal wave resistance

Buildings in “V” zones must use pier/piling construction and be free of obstruction below the BFE (breakaway walls OK)

Using these smart building practices also increases safety for buildings near V zones

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Homes With Basements Homeowners with basements in high-risk zones face difficult choices• Restricted coverage• High risk of water damage

Options• Fill in basement• Or pay more for flood insurance

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Takeaway: What to Tell Clients

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Communicating With Your Clients What else will you communicate to your

clients about flood risk and flood insurance, including BW-12 and ABFEs?

How will you communicate with your clients?

What additional resources would you like to have?

What is your personal action plan to get the message out?

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For Additional Information Visit www.Region2Coastal.com for many resources,

including:• Increased Cost of Compliance: How You Can Benefit• Increased Cost of Compliance: Creating a Safer Future• Changes in the Flood Insurance Program: Preliminary Considerations for

Rebuilding• FEMA Building Science Resources to Assist with Reconstruction after Hurr

icane Sandy• Hurricane Sandy Advisory Base Flood Elevations in New Jersey and New Y

ork• Advisory Base Flood Elevations (ABFE) Frequently Asked Questions

For information on flood insurance and BW-12• WYO Bulletins at http://bsa.nfipstat.fema.gov/wyobull/wyobull2012.html• Call the National Flood Insurance Program Help Center at 1-800-427-

4661 • Visit agents.floodsmart.gov to access additional information as it

becomes available.

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