This calculation is 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)
|Current Year Premium
|Year 1 Premium
|Year 2 Premium
|Year 3 Premium
|Year 4 Premium
|Year 5 (and beyond) Premium
FEMA's Fact Sheet of December 2012 says they will begin phasing out grandfathered rates in 2014 for FIRMs delivered after July 6, 2012. It does not address the timeline for phasing out grandfathered rates for risks identified on FIRMS issued prior to July 6, 2012.