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Changes in Flood Insurance Costs To Take Effect April 1

27 February 2015   Christina Sandoval, Yavapai County
Implementation of NFIP Reform Legislation Brings Higher Costs for Some, Financial Relief for Others

On April 1, 2015, the Federal Emergency Management Agency (FEMA) will implement additional changes to the National Flood Insurance Program (NFIP) as directed by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) and Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters).  Some flood insurance policyholders may see significant increases in what they pay compared to prior years. The biggest increases will affect the owners of some older homes that are not used as the owner’s primary residence. The lower, subsidized rates that previously applied to these older properties are being phased out, and policyholders could see an increase of 25 percent, plus a surcharge. However, April 1 also brings lower initial rates for properties newly shown to be at high risk when an existing flood map is updated. For the first 12 months after the new map becomes effective, owners will be able to obtain insurance at the NFIP’s lower cost Preferred Risk rate. After that, premiums will increase over time to reach their full-risk rate.

Subsidized rates transitioning to full-risk rates.In high-risk areas, properties that were built before a community’s first Flood Insurance Rate Map (FIRM) was issued (known as pre-FIRM properties) have long been able to receive subsidized rates that don’t reflect the full flood risk.  To help make the NFIP more financially strong, Congress directed FEMA to increase these rates to reflect the full risk.  There is a cap on how much premiums can increase each year, but there is also an annual surcharge that applies to all policies which, once added, could drive the total percentage increase higher than the cap. 

Premium increases for most policies are capped at 15 to 18 percent. On top of that, the HFIAA surcharge is $25 for all primary residence policies and $250 for all other polices. This surcharge will be added annually until all subsidized rates are eliminated nationwide.  This surcharge will be placed in a reserve fund, also created by the reform legislation, to help pay future claims.

More rapid increases for older, non-primary residences.More rapid increases to full-risk rates apply to pre-FIRM homes where the insured lives less than 50 percent of the policy year.  The path of 25 percent annual increases began in January 2013; effective April 1 these properties will also receive the $250 HFIAA surcharge.  FEMA projects that the average nationwide premium increase including the surcharge will be 37 percent for these homes.

An easier glide path when flood risk increases.Within the reform legislation, there is some financial relief for property owners who find that when updated flood maps are issued, their home or business is at a higher risk than previously identified (e.g., mapped from Zone X to Zone AE). Starting April 1, 2015, the Newly Mapped Property rating option will allow for the properties newly mapped into a high-risk to be rated with a lower-cost Preferred Risk Policy (PRP) premium for the first 12 months after the new flood map becomes effective.  After that, premiums will increase up to the 18 percent a year cap until the property reaches its full-risk rated premium.

A new, higher deductible.FEMA will also begin offering a $10,000 deductible option for one-to-four family residences which results in a 40 percent reduction in premium.  If a property owner is required to carry flood insurance and wishes to use this deductible, the lender typically must first approve its use.

For more information about the reform legislation, For more information about flood insurance and the rating options contact your insurance agent or  For updates on the Yavapai County Flood Control District flood-related projects and studies,