Since 2008, many homes and businesses in the United States have been rezoned on Federal Emergency Management Administration flood hazard maps from low-to-moderate flood risk areas into higher risk areas, and vice versa. Because of their reassignment into a zone designated a higher risk for flood, many of these properties are now required to buy flood insurance or are faced with an increased cost for such coverage.
In order to lower the cost impact of the mapping changes, the National Insurance Flood Insurance Program is extending the eligibility for its Preferred Risk Policy, or PRP, for two years for structures in a moderate-to-low risk flood zone that have been newly designated into a high risk flood zone.
The change is effective Jan. 1, 2011. Additionally, as of Oct. 1, 2010, the NFIP is making the PRP pricing available for structures that were rezoned from a low-to-moderate risk area to a high risk area on or after Oct. 1, 2008.
Joe Cecil, with FEMA’s Risk Insurance Division, Underwriting Branch, explained that the PRP is neither a new policy nor a new pricing structure. Whether a property is commercial or residential, the NFIP offers a standard flood policy. However, the price of the policy is dependent upon whether the property is deemed a preferred risk, which is eligible for a lower cost premium, or a special flood hazard risk.
Cecil noted that the preferred risk policy was introduced in 1989 and under the current rules to qualify for the lower policy price of the PRP a property must be located in a low-to-moderate risk area, which are designated on a flood insurance rate map as zones B, C or X.
“What we’re doing is expanding the eligibility criteria for that low cost premium,” Cecil said, in order to make the insurance more affordable for those who have been subject to map changes.
“If your property was newly designated into a special flood hazard area, a zone starting with the letter A or V … then you would no longer be eligible for the preferred risk on your next renewal — that’s the current rules,” Cecil explained.
“What’s new here is we’re going to extend the eligibility for the preferred risk for two years after a map revision has occurred, beginning on Jan. 1, 2011, for any policy effective on that date,” he said. “We’re also making this available to anyone affected by a map revision that occurred on or after Oct. 1, 2008.”
A large number of map changes became effective beginning in 2008. As a result consumers whose properties were newly mapped into a special flood hazard area became subject to a statute under which they are required to purchase flood insurance if they have a federally backed or regulated loan on the property.
“Mandatory purchase requirement is not FEMA’s requirement,” Cecil said. The requirement was passed in the Flood Protection Act of 1973 and has been amended several times. FEMA does not regulate whether properties that are required to have flood insurance actually have coverage, but other federal agencies do, he said.
“To qualify for the preferred risk you had to be in the low to moderate risk area — zones B, C or X, and you had to have minimal loss history. You couldn’t have more than two losses exceeding $1,000. There are a number of criteria around the loss history.”
Assuming a property meets the loss history requirement and is in a low-to-moderate risk area on the date of application or the effective date of renewal, the property is eligible for the preferred risk.
“There’s no change to that, you will still be eligible after this extension of eligibility is implemented,” Cecil said.
What Agents Can Do
Cecil said agents who offer flood insurance should be aware that some of their insureds have been or will be mapped out of the special flood hazard area and some will be mapped into it.
“The numbers are almost the same that are moved in as are moved out,” he said. “The people who are moved out become eligible for the preferred risk, as well.”
Insurance companies will be contacting existing policyholders about the effect of flood map changes on their properties.
“The agent doesn’t need to take that burden on,” Cecil said. “But where he can focus his attention is on the rest of his portfolio of customers who may not have purchased a flood policy, who may have a homeowners, or fire policy with the agent, or whatever, but they don’t have a flood insurance policy. Maybe they declined it because of the price. If they’re eligible for this price reduction, that may change their mind.
“So we would encourage agents to look not just at their existing flood insurance book of business but their entire portfolio to see who may qualify for this lower cost policy.”