Friday, September 22, 2017

Flood Maps and Flood Insurance

With the release of the new flood hazard maps, some property owners will learn their risk is higher or lower than the previous maps indicated. Others may discover their Base Flood Elevation (BFE) changed. A change in risk level can affect what you pay for flood insurance. Flood insurance is a federally underwritten program which helps homeowners, business owners, and renters repair or replace buildings and their contents after a flood.

If you have a loan through a federally regulated or insured lender and are in a high-risk area (flood zones labeled with letters beginning with A), the federal government requires you to carry flood insurance as a condition of your loan.

However, if you already have a flood insurance policy in place when your building is newly identified to be in a high-risk area, your premium can be calculated using the lower risk zone shown on the earlier map. The National Flood Insurance Program (NFIP) provides rating options to help reduce your cost. So, having a policy in advance not only will reduce the financial impact should a flood occur, but also save you money. The chart below helps explain your options.

If your building is no longer to be shown to be in a high-risk area and is now in a moderate- or low-risk area, flood insurance is no longer federally required; however, the risk is only reduced, not removed. The NFIP has a low-cost policy Preferred Risk Policy that you can convert your existing policy to ensure continued coverage and be refunded the difference in premium for that year.

For a more detailed explanation, click here. For more information about flood insurance, visit our Flood Insurance Policies page.

If Maps Show... These Requirements, Options And Savings Apply
Change from moderate or low flood risk to high risk (flood Zone B, C, or X to Zone A, AE, AH, AO)

Flood insurance is mandatory. Flood insurance will be federally required for most mortgage holders. Insurance costs may rise to reflect the true (high) risk.

Rating Options can offer savings. The National Flood Insurance provides savings by allowing lower-cost Preferred Risk Policy (PRP) rates to be used the first 12 months after a new flood map becomes effective.  Premiums will then increase up to 18 percent each year.  Affected property owners are encouraged to buy a PRP before the maps become effective for additional savings.

Increase in the Base Flood Elevation (BFE)

An increase in risk can result in higher premiums; however, “grandfathering” can offer savings. The National Flood Insurance Program grandfathering rules allow policyholders who have built in compliance with the flood map in effect at the time of construction to keep the Base Flood Elevation to calculate their insurance rate. This could result in significant savings.

Change from high flood risk to moderate or low risk (e.g., flood Zone A, AE, AH, AO, to Zone X or shaded X)

Flood insurance is optional but recommended. The risk has only been reduced, not removed. Flood insurance can still be obtained, and at lower rates. Nearly 30 percent of all flood insurance claims in Arizona come from moderate-to-low-risk areas.

Conversion offers savings. An existing policy can be easily converted to a lower-cost Preferred Risk Policy, if the building qualifies. Note that lenders always have the option to require flood insurance in these areas.

No change in risk level

No change in insurance rates. However, this is a good time to review your coverages and ensure that your building and contents are adequately insured.

1A BFE is the elevation, above sea level, that floodwaters have a 1 percent chance of reaching or exceeding in any given year.

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