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Flood Premiums Rising Dramatically



Update: April 5, 2014

FEMA publishes Overview of the Homeowner Flood Insurance Affordability ActClick here

President Obama signed HB 3370 into law on March 21,  following passage by over 70% in both chambers earlier in the month. The bill (Grimm-Waters 2014) makes significant changes to provisions of the Biggert-Waters NFIP Reform Act of 2012.

The House bill (companion to a bill that passed the Senate on January 30), was amended February 28, replacing the original language in its entirety. A significant difference between the House and original Senate bills is that the House bill repeals Section 100207 of Biggert-Waters, which would eliminate grandfathering of Post-FIRM rates, while the original Senate bill (Senate Bill 1926) only delayed implementation of that section for four years. Many provisions of the House bill are consistent with - and strengthen provisions of the Senate bill, but HB 3370 introduces several new concepts.

See the first link below for the text of HB 3370 as it passed the House and Senate. See the second link for a list of the 238 co-sponsors of the House bill, by state or territory.

Previously, the appropriation bill that funds FEMA for the period October 1, 2013 through September 30, 2014, contained language that bars FEMA from using its funding "to implement, carry out, administer, or enforce Section 100207 of the Biggert-Waters Flood Insurance Modernization and Reform Act of 2012". FEMA reportedly says that will delay implementation 12 to 18 months from its original implementation schedule, which would have started phasing out Grandfathered rates in late 2014. The provision has no impact on implementation of Section100205, which affects Pre-FIRM rates. Feb 6 article on .

Copies and summaries of NFIP Reform legislative activities and articles related to NFIP Reform have been assembled by the Coalition for Sustainable Flood Insurance ( The Association of State Floodplain Managers ( has a comprehensive collection of related items, activities and position statements.

The 2012 NFIP reforms will result in premium increases across the nation. Some properties will be hit harder than others, as explained here. People rebuilding after Isaac, Sandy and other disasters need to be aware of these changes, because they are making critical decisions about investing in flood-prone property and businesses. 

See this EDEN page: Flood Insurance Issues in Recovery

NFIP Reform legislation passed as Title II of the Transportation Bill (H.R. 4348) and was signed into law (PL 112-141) on July 6, 2012. It extended the NFIP for five years and made a number of changes related to improving the solvency of the NFIP, flood risk mapping (including mapping of levee protected areas), and flood mitigation programs. It raised the limit on annual premium increases to 20% (from 10%) and requires FEMA to submit a ten-year repayment plan for the program's debt to the U.S. Treasury, most of which was incurred during the 2005 hurricane season. The solvency and debt-reduction requirements - together with the raising of the limit on annual premium increases to 20% - virtually ensure that premiums will be going up across the board. But they will go up faster on properties that are too low in the flood zone and losing their subsidies.

See this EDEN page: NFIP and Reforms

Pre-FIRM and Grandfathered Rate Changes 

Since the beginning of the National Flood Insurance Program (NFIP) owners of buildings that found themselves too low in the flood zone through no fault of their own have been given a break on their flood insurance premiums. These properties have been insured by the NFIP, a federally run insurance program, at rates that do not reflect the true risk of flood damage. The policies are subsidized by the NFIP. The NFIP can borrow from the U.S. Treasury when premium collections are not sufficient to pay claims, but that loan must be repaid.

The no fault part of this condition means one of two things:

  1. The building was built before 1975 or before the community (governing jurisdiction) received its first Flood Insurance Rate Map (FIRM). These properties are insured at Pre-FIRM rates, unless the owner shows by an official elevation survey that the building is NOT too low and elects to be rated based on elevation.
  2. The building was built Post-FIRM, in compliance with a FIRM, with a permit from the community, but a more recent FIRM shows the building to be at greater risk of flooding. These buildings have been grandfathered administratively, and allowed to keep the rate-class (flood zone and building elevation relative to BFE) that applied at the time of construction.

Discounted insurance rates are being discontinued for all properties except Pre-FIRM primary residences that have not lost their qualification for the rate. (See How Residential Property Loses its Pre-FIRM Rating, below.)

  1. Pre-FIRM rates are being discontinued for all business properties and other buildings that are not someone's primary residence. Pre-FIRM rates for currently insured properties expire with termination of an existing policy and are not available for a new policy on the property. Currently insured properties that no longer qualify for Pre-FIRM rates will see their premiums increase 25% per year until actuarial rates are achieved.
  2. Under BW-12, grandfathered rates would be discontinued, with increases toward actuarial rates being phased in over a 5-year period, 20% of the increase being added each year. The five-year period would have begun on the Effective Date of the FIRM that identifies the increased risk. For example, if the actuarial rate is $1000 per year more than the grandfathered rate, the premium would increase $200 per year for five years. The March 2014 legislation (Grimm-Waters Act, HB 3370) restored grandfathering before FEMA began implementing this provision.


How Residential Property Loses its Pre-FIRM Rating 

A Pre-FIRM primary residence will lose its qualification for Pre-FIRM rates under the following conditions and situations:

  • If, after July 6, 2012, the building is substantially damaged and the cost to restore it to its pre-damaged condition is 50% of the fair market value of the building before damage occurred. For substantial damage, the “cost” is the cost to restore the building to its pre-damage condition - even if you don’t plan to spend that much or to restore it fully. It also includes the cost of discretionary improvements you plan to make as part of the restoration project.
  • If the flood insurance claims history on the building meets one of the following criteria:
    • Total NFIP claims paid for flood-related building damage exceed the fair market value of the building
    • The property is a severe repetitive loss (SRL) property – A single family property with 1-4 residences is an SRL property if it has incurred flood-related damage resulting in four or more claims payments for building damage that exceed $5,000 each, OR, two claims payments for building damage that together exceed the value of the insured building.
  • If the owner of a repetitive loss property refuses an offer of mitigation assistance (to raise or relocate the building), including an offer under the Hazard Mitigation Grant Program (HMGP)  

The following provisions of BW-12 were either deleted or modified by the 2014 Grimm-Waters Act:

  • When the policy-holder intentionally lets the policy lapse. [ADDED qualifier, that Pre-FIRM qualification is NOT lost for a lapsed policy if flood insurance was not required for mortgage protection]
  • When the property is sold. A new policy cannot be written at Pre-FIRM rates. [DELETED]
  • If, after July 6, 2012, the building is improved and the cost of improvement is more than 30% of the fair market value of the building before improvements were begun.  [CHANGED 30% back to 50%]

Also under the 2014 Act

  • Policy-holders who were charged full actuarial rates for new policies on Pre-FIRM properties (per the middle bullet above), will be refunded the excess premium paid, and the ability to assume the seller's NFIP policy has been restored.
  • Most (possibly all) policies for which the rate-charged is less than the current risk-based rated, will see a $25 or $250 per year surcharge, depending on use of the property (residential vs. non-residential).


Sample Calculation - Loss of Grandfathered Rate 

Homes at BFE and BFE-4

The BW-12 provision that would have eliminated grandfathering was overturned in March 2014 by the Grimm-Waters Act. Since FEMA had deferred implementation to October 2014, no properties experienced this change.

This sample calculation - now moot - was based on information provided in this FEMA Brochure, which includes the graphic shown here.

Premium calculation is for $250,000 building coverage only (no contents coverage), for a single-family, one-story structure without a basement located in Zone AE at 4 feet below BFE (left) and at BFE (right). Rating is per the FEMA flood insurance manual dated October 1, 2012) and a standard National Flood Insurance Program (NFIP) deductible

FEMA created this graphic to illustrate the premium savings earned by raising a building that is four feet below BFE up to BFE. The premium information, however, is useful also for demonstrating the effect of losing a grandfathered rate, where the building was built at BFE according to the FIRM at time of construction, and and found itself suddenly at BFE-4 on the newer map. Prior to the 2012 NFIP Reform Act the property could continue being rated as a Zone AE property built at BFE forever. The rate for a Zone AE property at BFE (in the example) yields a premium of $1,410 per year.

The 2012 Reform Act discontinues grandfathered rating, allowing five years to convert to the rate appropriate for risk shown on the currently effective FIRM.  The 2012 Reform Act requires the property to be rated as a Zone AE property at BFE-4 feet. The premium for BFE-4 (in the example) is $9,500.

The difference in premium = $9,500 - $1,410 = $8,090. The premium increase each year attributed to loss of grandfathering is 20% of $8,090. That is $1,618 per year for 5 years, ignoring any general annual rate increases. The premiums over the next five years would be as follows:

Annual increase (20% of $8,090) $1,618
Current Year Premium $1,410
Year 1 Premium $3,028
Year 2 Premium $4,646
Year 3 Premium $6,264
Year 4 Premium $7,882
Year 5 (and beyond) Premium $9,500

FEMA's Fact Sheet of December 2012 says they will begin phasing out grandfathered rates in 2014 for FIRMs delivered after July 6, 2012.  Language included in the Federal FY 2014 appropriation bars FEMA from using these funds to implement this section of BW-12. FEMA says this will delay implementation by 12-18 months. Feb 6 article on 


Sample Calculation - Loss of Pre-FIRM Rate 

According to the 2012 Reform Act, when a property no longer qualifies for a Pre-FIRM rate the premium will go up 25% per year until actuarial rates are achieved. This could take many years. However, sale of the property can result in an immediate jump to actuarial rates.

We can do the sample premium calculation using the example shown above for grandfathered rates, even though a premium based of Pre-FIRM rates is not given. For the example property, a Pre-FIRM rated premium of $2,000 per year would be a reasonable estimate. And, as shown in the previous section, the annual premium for a home rated actuarially at BFE-4 would be $9,500 per year.  Again, ignoring any general premium increases and focusing solely on the premium increase due to loss of Pre-FIRM rating, the premium increases at 25% per year would look like this:

Annual increase (25% per year)
Current Pre-FIRM Premium (est.) $2,000
Year 1 Premium (25% over $2,000) $2,500
Year 2 Premium (25% over $2,500) $3,125
Year 3 Premium (25% over $3,125) $3,906
Year 4 Premium (25% over $3,906) $4,883
Year 5 Premium (25% over $4,883) $6,104
Year 6 Premium (25% over $6,104) $7,630
Year 7 Premium (25% over $7,630)

$9,537 or risk-based, if lower

FEMA's Fact Sheet of December 2012 says they will begin phasing out Pre-FIRM rates for second homes in January 2013, and for other Pre-FIRM structures later in 2013. They will begin charging risk-based premiums for newly purchased properties in late 2013.


Plain Language - Links to Technical Resources 

Actuarial rates for flood insurance - As used here the word "actuarial" refers to the rate that would be charged a similar property that does not have a discount (break, subsidy). The word itself may have specified, broader meaning within the insurance industry. The changes imposed in 2012 by Congress appear to be intended to move the NFIP itself toward being more actuarially sound.

Base Flood Elevation (BFE) - The base flood is the 1%-annual-chance flood, commonly called the "hundred year flood." Base Flood Elevation is the water-surface elevation of the base flood. The depth of the base flood can be calculated by subtracting the ground elevation from the BFE. The probability is 1% that rising water will reach BFE height in any year; which compounds over a thirty-year period to 26% or more.

In the flood zone - This term is used by most people to mean the property is in the Special Flood Hazard Area (SFHA), as depicted on the Flood Insurance Rate Map (FIRM). The NFIP flood zones are A and V zones and sometimes have letters or numbers following the A or V (e.g. AE, AH, AO, VE). The officially adopted FIRM is the basis for all flood insurance rating. The community may be using a more restrictive map with broader flood zones and higher flood standards for regulating floodplain development. The community's regulatory map also may include allowances for increased runoff, subsidence, failure of dams and levees, or sea level rise, which are not reflected on the FIRM.

Too low- From an insurance-rating standpoint, "too low" means the elevation of the building is lower than the BFE.  Building elevation in the A-zones is measured at the top of the lowest floor. Elevation in the V-zones is measured at the bottom of the lowest horizontal structural member of the foundation. Enclosures that are lower than the living space may be considered the "lowest floor" in some circumstances; machinery and equipment located below the living space may raise insurance rates. The following resources may be helpful:
     NFIP Elevation Certificate with lowest floor diagrams
     FEMA Technical Bulletin 1-08: Openings in Foundation Walls and Walls of Enclosures

From a practical standpoint, "too low" means the risk of flooding is higher, a fact that has been concealed till now by artificially low (subsidized) insurance rating. The lower you are relative to BFE, the higher your risk of flooding. Being “too low” in the flood zone can cause hardship for the owner if the building is substantially damaged by fire, flood, tornado, earthquake or other event and must be raised before it can be repaired. The cost of raising the building usually is not covered by home owners insurance, but may be offset to some extent by the Increased Cost of Compliance coverage of the NFIP policy.

NFIP Community Status Book - Use this to find out which communities in your state participate in the NFIP, when they entered, and the dates of their first and current Effective FIRM.  Data are presented in Adobe PDF, comma separated values (CSV) text file, and HTML formats.

State NFIP Coordinators - maintained by the Association of State Floodplain Managers.  State coordinators will know their local floodplain administrators.

Bulletin to NFIP Insurers Regarding Implementation of the Reform Act and other Policy Matters - March 29, 2013.


Last Updated:4/5/2014 6:56 AM

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