W-35: BW 12 and Program Changes: Rating and
Reporting
Presenters: John Hintermister and Joe Cecil
BW 12 and Program Changes
Overview
• Part 1: Changes supporting Section 100205 (subsidy elimination) of
the Biggert-Waters Flood Insurance Reform Act of 2012 (BW 12)
• Part 2: Additional October 1, 2013, Program Changes
Part 1: BW 12 Rating and Subsidy
Elimination
Overview
• Premium increases
• Subsidized impacted by Section 100205 of BW 12
• Do I need and Elevation Certificate?
• Pre-FIRM Elevated Buildings Receiving Full Risk Rates
• Grandfather Procedures
• Exclusion of Subsidized Rates (25% increase on Renewals)
• Exclusion of Subsidized Rates (Immediate Full-Risk Rate on New
Business)
Premium Increases
•Average increase across all policies is 10%
• A Reserve Fund Assessment of 5% for all policies except PRP & GFIP
• 25% increase for certain Pre-FIRM properties in the SFHD and zone D
• Non-principal/non-primary residences
• Severe Repetitive Loss properties, including those that have incurred flood related damages in
which the cumulative amount exceeds the fair market value of the property; and
• Business Properties
• Federal Policy Fee increase of 10%
• V Zones
• Post-FIRM: 11%
• Pre-FIRM: 17%
• A Zones
• Post-FIRM AE, A1-A30 Zones: 6%
• Pre-FIRM A Zones: 16%
• AO/AOB, AH/AHB Zones: 6%
• Unnumbered A Zones: 8%
• A99 and AR Zones: 9%
• X Zones:
• Standard X is 8%
• PRP is under 1% including a 19% increase to PRP Eligibility Extension policies
Subsidized Rates Impacted by Section
100205 of BW 12
Subsidized premiums are estimated at a rate that is less than sufficient to fund the
reserves for anticipated losses and expenses that will occur within the subsidized rate
classes.
Section 100205 of BW 12 eliminates only the subsidy to Pre-FIRM rates for properties in
the SFHA without elevation data from an Elevation Certificate (EC) for Flood Insurance,
and Pre-FIRM zone D properties.
Full-risk premiums are estimated at a rate sufficient to fund the reserves for
anticipated losses and expenses that will occur within each class.
Post-FIRM standard X-zone, D-zone, PRP’s and the PRP’s issued under the Eligibility
Extension and most policies using Post-FIRM elevation rating tables are not subsidized
– even if under the NFIP Grandfather procedures.
The NFIP establishes rate classes by zone, and Post-FIRM rates for all zone classes
are not impacted by Section 100205 of BW 12.
Do I need an Elevation Certificate?
You probably start the quoting process asking what zone is the building in
on the current FIRM, and when was the building permitted for construction or
substantial improvement.
•Your first question is still: “What zone is the building in on the current FIRM?”
If the property is located in an SFHA, you probably need an EC.
• Your second question is no longer “When was the building constructed?” – This
will now be your third question?
• Your new second question is: “Is this quote for new business, or does it qualify
as a continuous coverage renewal offer to a loyal customer?”
There will be no extension of subsidies to new business, the reinstatement of a
lapsed subsidized policy, or an assignment resulting from a new purchase of the
building.
Pre-FIRM Elevated Buildings Receiving FullRisk Rates
• Use the same rating guidelines for Post-FIRM elevated buildings in determining
the lowest floor elevation for rating purposes for Pre-FIRM elevated buildings.
• Since there are coverage limitations for Post-FIRM elevated buildings, and not for
Pre-FIRM elevated buildings, the “no basement/enclosure/crawlspace” columns
from the Post-FIRM rate tables should be used to rate the Pre-FIRM buildings (the
same rates used for non-elevated buildings).
• The Declarations Page and Transaction Record Reporting Process (TRRP) Plan
reporting should still indicate an elevated building with the appropriate enclosure or
obstruction type to describe the building.
• This procedure does apply to renewals policies with original new business dates
prior to October 1, 2013, where the policy covers a Pre-FIRM buildings already
receiving Post-FIRM Optional rating. The change is effective on the first renewal on
or after October 1, 2013.
Grandfather Procedures
• There is no change to the “built-in-compliance” Grandfather procedure at this
time. This includes the small set Pre-FIRM buildings constructed prior to January 1,
1975, but after the initial FIRM date. All other Pre-FIRM buildings never qualified for
this procedure.
• The “continuous coverage” Grandfather procedure is unchanged, with one
exception: When a subsidized policy is assigned to a new owner due to a
purchase, the policy must be full-risk rated according to the current FIRM.
• Policies reinstated after a lapse in coverage have always lost their eligibility for
the “continuous coverage” Grandfather procedures. However, such policies also
lose eligibility to use subsidized rates.
Exclusion of Certain Properties from
Receiving Subsidized Premium Rates
(Renewals - 25% annual increase)
• Non-Principal/Non-Primary Residence
• Severe Repetitive Loss
• Businesses
Exclusion of Certain Properties from
Receiving Subsidized Premium Rates
(Renewals : Non-Principal/Non-Primary)
Non-Principal/Non-Primary Residence
• For rating purposes only, FEMA defines a non-principal/non-primary
residence as a building that will not be lived in by the insured or the insured’s
spouse for at least 80% of the 365 days following the policy effective date.
• Table 2B was introduced effective January 1, 2013, representing a 25% annual
increase, and was 25% higher than Table 2A.
• The next increase is scheduled for January 1, 2014, and was included with the October
1, 2013, Program Change Packet. With the Reserve Fund Assessment, policies
renewed under Table 2B on January 1, 2014, will receive a 25% increase over January
1, 2013, rates.
Exclusion of Certain Properties from
Receiving Subsidized Premium Rates
(Renewals: SRL Properties)
Severe Repetitive Loss
• 1-4 family residence that meet 1 of the following conditions:
• 4 or more separate claim payments of $5,000 each (including building and
contents payments)
• 2 or more separate claim payments (building payments only) where the total of
the payments exceeds the current value of the property
• In either case, 2 claim payments must be within 10 years of each other.
•Table 2C (and 4B in CONDO) become effective October 1, 2013, representing a 25%
annual increase over October 1, 2012 Table 2A (and 4A in CONDO) after accounting for
the Reserve Fund Assessment.
• The prospective policyholder refusing a mitigation offer is part of the SRL group.
Exclusion of Certain Properties from
Receiving Subsidized Premium Rates
(Renewals: Business Properties)
Businesses
• Within each zone class, businesses are part of the non-residential occupancy group.
• Each zone class cannot increase by more than 20%, even if businesses within the
class increase at 25%.
• To comply with the law, all subsidized non-residential properties will receive the 25%
annual increase, whether a business or not.
• FEMA will continue to asses whether it is necessary to distinguish businesses from
other non-residential properties.
No Extension of Subsidy to New Policies for
Pre-FIRM Properties in SFHAs and Zone D
(New Business)
• Properties not insured as of the date of enactment of BW 12
• Policies under the NFIP that have lapsed
• Newly purchased properties after enactment
No Extension of Subsidy to New Policies for
Pre-FIRM Properties in SFHAs and Zone D
(New Business: Newly Insured)
Properties not insured as of the date of enactment of BW 12
• Any application effective on or after October 1, 2013, excluding rollover, transfer or
rewrite
• Renewals of policies resulting from applications that initially became effective on or
after July 6, 2012, and before October 1, 2013
No Extension of Subsidy to New Policies for
Pre-FIRM Properties in SFHAs and Zone D
(New Business: Lapsed)
Policies under the NFIP that have lapsed
• A lapsed policy is any policy for which premium payment is received by the insurer after
the 30-day grace period following the policy’s expiration date on or after October 1, 2013
• Also included are those policies that lapsed on or after October 4, 2012, and before
October 1, 2013.
• Exclude policies that lapse due to community suspension if the reinstatement of
coverage is within 180 days of community reinstatement
• Lapsed policies lose subsidy eligibility, and “continuous coverage” Grandfather
procedure eligibility
No Extension of Subsidy to New Policies for
Pre-FIRM Properties in SFHAs and Zone D
(New Business: New Property Purchase)
Newly purchased properties after enactment (including certain assignments)
• New business effective on or after October 1, 2013, is full-risk rated whether written at
the time of property purchase or later
• An assignment of an existing policy due to a purchase loses subsidy eligibility, and
loses “continuous coverage” Grandfather procedure eligibility if the seller’s policy was
subsidized
• Endorse to full-risk rating with the current map upon assignment by endorsement
effective on or after October 1, 2013
• Renewals of policies where an assignment due to purchase occurred effective on
or after July 6, 2012, and before October 1, 2013
•Gifts, inheritances, transfer to an estate and other assignments that do not involve
property purchase remain eligible for subsidized rates
•
Summary of Part 1
Summary
• Premium increases
• Subsidized impacted by Section 100205 of BW 12
• Do I need and Elevation Certificate?
• Pre-FIRM Elevated Buildings Receiving Full Risk Rates
• Grandfather Procedures
• Exclusion of Subsidized Rates (25% increase on Renewals)
• Exclusion of Subsidized Rates (Immediate Full-Risk Rate on New
Business)
Part2: Additional October 1, 2013, Program
Changes
Overview
• Increased Tentative, Provisional and MPPP Rates
• PRP and the PRP Eligibility Extension
• Introduction of the Reserve Fund
• Increased Federal Policy Fee
• Elimination of the waiting period exception due to lender requirement on existing loan
• NFIP Forms Changes
• New Declarations Page Requirements
• Transaction Record Reporting Process (TRRP) Plan and Edit Specifications to support
BW 12 and other Program changes
PRP and the PRP Eligibility Extension
• Section 100205 of BW 12 impact on the PRP and PRP Eligibility Extension
• There is no change to PRP rules, or the rules to qualify under the PRP Eligibility
Extension at this time.
• The Reserve Fund Assessment does not apply to the PRP or PRP Eligibility Extension
at this time.
• All PRP’s previously shared the same premium tables. Effective October 1, 2013,
there are a new set premium tables specifically for PRP’s issued under the Eligibility
Extension.
• PRP’s for properties located in a B, C or X zone on the current FIRM will see a
premium increase of less than 1% due to the increased Federal Policy Fee.
• PRP’s issued under the Eligibility Extension for properties newly mapped into an SFHA
from a Non-SFHA by a FIRM revision that became effective on or after October 1, 2008,
will see a 20% increase over last year’s premium.
Tentative, Provisional and MPPP Rates
• Increased Tentative, Provisional and MPPP Rates increased
• All three rating methods are used to provide evidence of an application for flood
insurance and payment while a full-risk rate has not been determined.
• Provisional and tentative rates were previously not used for Pre-FIRM buildings, and
claims cannot be paid on policies using the provisional or tentative rate method until the
full-risk premium is determined. MPPP rates are sound as a group.
• Tentative and provisional rating methods have been adjusted upwards to ensure that
sufficient premium is collected to reduce the chance of coverage reduction prior to a loss
when a full-risk premium is determined. MPPP rates were raised accordingly to maintain
the MPPP reserves.
• Setting the rates relatively high and using similar rates for all three rating methods also
discourages “gaming the system” to avoid BW 12 rating requirements.
The Reserve Fund Assessment: Section
100212 of BW 12
• The total amount of the fund is proportionate (1-percent) to the previous fiscal year’s total
loss exposure for outstanding policies in-force, plus fund administration expenses.
• The Reserve Fund Assessment does not apply to the PRP or PRP Eligibility Extension at
this time, nor the Group Flood Insurance Policy (GFIP).
• The Reserve Fund Assessment to the individual policyholder is determined as a percentage
of the policy premium after CRS, but before the Federal Policy Fee and any probation
surcharge if applicable, and may vary each year. Some years may be zero. For October
2013, the Reserve Fund Assessment is 5%.
• The Reserve Fund Assessment is not subject to WYO Company expense allowance,
Unallocated Loss Adjustment Expenses, or the NFIP Direct Servicing Agents’ commissions.
• The Reserve Fund Assessment is not subject to state tax.
• For the purpose of calculating endorsement premiums or cancellation/nullification return
premiums, treat the Reserve Fund Assessment similar to the Federal Policy Fee.
Increased Federal Policy Fee
• The Federal Policy Fee (FPF) is increased 10%
• Standard rated policy FPF is $44, and the PRP is $22
• Condominium FPF is also increased 10%, and a revised CONDO page 7 will indicate
the appropriate changes
Elimination of the “No Waiting Period Due to
Lender Requirement”
• This does not change the waiting period exception at or prior to the closing of a
loan transaction, where flood insurance is initially purchased in connection with the
making, increasing, extending, or renewal of a loan, and the application and
presentment of premium is at or prior to the closing.
• This does eliminate the exception when flood insurance is required as a result of
a lender determining that an existing loan on a building in an SFHA that does not
have flood insurance coverage should be protected by flood insurance.
• There is only a 1-day waiting period exception during the 13-month period for
following the effective date of a FIRM revision when a property is newly mapped
into the SFHA.
• BW 12 did create a waiting period exception that is determined post-policy
issuance when a flood results to an area impacted by a wild-fire on federal land.
This was implemented in 2012 (see W-12080 issued October 19, 2012)
Forms Changes (Applications and
Endorsement, and Cancellation forms)
• New Data Collection (Added) to Applications and Endorsement:
• Transfer indicator (and prior policy number requirement for transfer or
rollover)
• Purchase Date/Assignment
• Building Purpose (to identify mixed use buildings)
• Business Property
• Tenant and Rental questions
• Severe Repetitive Loss property question
• Additions and Extensions questions (Part 1 and Part 2)
• Reserve Fund Assessment calculation
• Elevator question
• Engineered Openings question
• Minor modifications to Cancellation form, including signature line for additional
insured’s.
Declarations Page Requirements
• Key Points
• There is a desire for uniform language among most stakeholders
• There is some flexibility, particularly with formatting
• The required language is not new to the NFIP
• The foundation description generated the most questions from insurers, leading to a
modification to W-13016
• Pre-FIRM elevated buildings should be described as elevated buildings, and the
enclosure should be properly described if applicable, even when using the same rates
as a non-elevated building
Modification to Declarations Page
Requirement
• Declarations Page Requirements: Foundation Description
Required Field
Elevated Building Indicator
Basement/Enclosure/Crawlspace/Subgrade
Crawlspace and Obstruction Type
Acceptable Value
Elevated or Non-Elevated
If Elevated (with or without openings in A
zones, and with or without breakaway
walls in V zones).
 No Enclosure or Crawlspace
 Enclosure with proper openings
 Crawlspace with proper openings
 Enclosure without proper
openings
 Crawlspace without proper
openings
 Enclosure with breakaway walls
 Enclosure with non-breakaway
walls
If Non-elevated
 No basement
 Unfinished basement
 Finished basement
 Subgrade crawlspace
Transaction Record Reporting Process
(TRRP) Plan Requirements
• New Risk Rating Methods ‘B’, ‘W’ and ‘E’
• New/Rollover/Transfer Indicator ‘T’ and expanded prior policy number reporting requirement
• New “Waiting Period Type” – ‘S’, ‘C’, ‘M’, and ‘N’
• Purchase Date Data (App - After 7/6/2012, if ‘Y’, ‘date’)
• Assignment Data (End – Assignment due to New Purchase? If ‘Y’, ‘date’)
• Business Property Indicator – Y/N
• Building Purpose – ‘R’, ‘N’, AND ‘M’ (Don’t confuse with building use)
• Severe Repetitive Loss Indicator – Y/N
• Additions and Extensions – ‘N’, ‘I’, ‘X’ and ‘A’
• Rental/Tenant – Y/N, is building coverage for tenant? - Y/N
• NFIP Reserve Fund – Dollar amount based on %
• Application Date and Premium Receipt Date (date format)
• Enclosure information
• New elevator information – numeric value
• Revisions to the Edit Specifications Manual – Reporting requirements and relational Edits to
support BW 12 and Program changes
Summary of Part 2
Summary
• Increased Tentative, Provisional and MPPP Rates
• PRP and the PRP Eligibility Extension
• Introduction of the Reserve Fund
• Increased Federal Policy Fee
• Elimination of the waiting period exception due to lender requirement on existing loan
• NFIP Forms Changes
• New Declarations Page Requirements
• Transaction Record Reporting Process (TRRP) Plan and Edit Specifications to support
BW 12 and other Program changes
W-35: BW-12 and Program Changes: Rating and
Reporting
Questions & Answers
Resources: W-13016 - http://www.nfipiservice.com/Stakeholder/FEMA/W-13016.html
Presenters:
Joe Cecil – (202) 212-2067 or joseph.cecil@fema.dhs.gov
John Hintermister – (202) 212-2214 or john.hintermister@fema.dhs.gov