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NFIP Flood Insurance Updates

NFIP Extension

The National Flood Insurance Program is set to expire next Friday, May 31, 2019; however, both the House and Senate have proposed bills that would extend funding through the end of the fiscal year, September 30, 2019. Existing proposals include a standalone bill, as well as, legislation included in a larger disaster relief package. Recent news indicates that lawmakers and the President have agreed to the disaster aid bill.

FEMA Risk Rating Initiative

FEMA’s new initiative, “Risk Rating 2.0,” will transform the way a property is rated through the NFIP next year. Through use of advancements in technology, FEMA plans to enhance mapping data and tie premiums to actual flood risk. According to FEMA, “This will include determining a customer’s flood risk by incorporating multiple, logical rating characteristics–like different types of flood, the distance a building is from the coast or another flooding source, or the cost to rebuild a home. The new rating plan will also aim to ensure customers will no longer face dramatic rate increases during map changes or at the edge of flood zones. By reflecting the cost to rebuild, the new rating plan will also aim to deliver fairer rates for owners of lower-value homes.” The current rating system, mainly based on whether a home is inside or outside the 100-year flood plain, has been in place for over 40 years. FEMA plans to announce new rates by April 1, 2020 that will take effect October 1, 2020.

NFIP Manual Updates

Last month, FEMA announced multiple revisions to the National Flood Insurance Manual. Proctor Financial would like to draw attention to a few of the noteworthy changes that became effective April 1, 2019:

  • Section 3 – How to Write, now clarifies that the lender for the condominium unit owner should not be on the declaration page when the applicant is the condominium association.
  • Section 4 – How to Endorse
    • Provides additional guidance for property address corrections and allows insurers to endorse a policy to correct a property address without FEMA approval. However, if a claim is pending, the insurer must now obtain authorization from FEMA, rather than the Federal Insurance Administration, prior to correcting the address and making a claim payment.
    • Clarifies requirements for assignment of a flood insurance policy and provides that a seller must sign the endorsement assigning the policy on or before the closing date and the insurer must receive the seller’s signature and documentation authorizing the assignment. Previously, the owner’s signature or acceptable documentation authorizing the assignment had to be received by the insurer on or before the date of ownership transfer.
  • Section 5 – How to Renew, provides updated guidance for payments sent via certified mail to insurers and clarifies that the payment receipt date, for valid payments, will be the certified mail date. A lapse in coverage will exist if the certified mail date is outside the grace period. If a lapse occurs, the new effective date of the policy will be based on the certified mail date.
    • Section 6 – How to Cancel – Various Cancellation Reason Codes were updated in the revised Manual, including:
      • Cancellation Reason Code 6 – Risks Not Eligible for Coverage, was updated regarding documents required and eligible terms for cancellation.  Refunds will be eligible for all prior terms during which the property was ineligible for NFIP coverage. This change is substantial and replaces the more restrictive rule that refunds would only be issued up to 5 years prior to the receipt date of the cancellation request. Supporting documents should include information as to when the property became ineligible for NFIP coverage.
      • Cancellation Reason Code 26 – Duplicate Policy from Source Other than NFIP.  This reason can only be used when the insured did not intend to renew or purchase the NFIP policy because the insured purchased duplicate flood insurance coverage from a non-NFIP insurer. The presumption will be that the insured’s intent was not to renew the NFIP policy if they purchased a duplicate non-NFIP policy prior to the NFIP policy’s purchase or renewal date. Evidence of valid duplicate non-NFIP flood insurance policy, such as a declaration page, is required to use Cancellation Reason Code 26. The NFIP policy will be nullified and a full premium refund, including fees and surcharges will be issued.

    An NFIP insurer may cancel a policy using this reason code without approval from FEMA under the following conditions, otherwise FEMA must review and approve the request:

    • Policyholder purchased a duplicate non-NFIP policy prior to the NFIP policy’s purchase or renewal date, and
    • Submitted the request to the NFIP insurer within 30 days of the NFIP policy becoming effective.

    Use the link provided below to review the most recently revised NFIP manual in its entirety:

    Proctor will continue to monitor these topics and provide updates as they develop.