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Elevation Certificates -- Do I Really Need One Now?
Thursday, May 1, 2014

--By Bruce Bender, CFM and ASFPM Insurance Committee Co-Chair

This is a common question we are hearing in workshops and floodplain managers are getting from their citizens. With the Biggert-Waters Flood Insurance Reform Act of 2012 becoming law July 2012, certain pre-FIRM properties previously rated with subsidized rates were having to be rated with their full-risk rate. FEMA does not have a rate table called “Full Risk-Rate,” but instead that rate varies per each building. Therefore, in most cases1, an Elevation Certificate would be required for the insurance agent to determine that full-risk rate.

For example, with the passage of BW-12, a policy written on a newly purchased pre-FIRM building in a high-risk area would have to be rated using an EC. This is when we (and members of Congress) heard about the large premiums and home closings not going through (or people were stuck paying this at renewal if they had purchased the home after the law was enacted and before that part of BW-12 was enacted). This full-risk rate requirement also applied to newly written and lapsed pre-FIRM policies in high-risk areas (and Zone D).

However, with the recent passage of the Homeowner Flood Insurance Affordability Act, this requirement was removed. As of May 1, 2014, policies on these pre-FIRM buildings (i.e., newly written, newly purchased, lapsed) will be rated using the subsidized rate table in effect Oct. 1, 2013. So, what do you tell the property owners when they ask if they need one now?

Looking closely at HFIAA, it does say that these properties will be on a path to full-risk rates, but it will be a very gradual rise (rates will increase between 5-15 percent with some exceptions to as high as 18 percent). There is one set of exceptions. What HFIAA did NOT change is the 25 percent annual rate increases that non-primary residences, commercial buildings, and those with significant losses will experience each year until they reach full-risk rate.

Again, that is determined on an individual-building basis. So, an EC will be needed to determine what that premium is and to help guestimate how long it will take to reach the full risk rate. For example, if a pre-FIRM premium2  is $3,000, and its full-risk rate premium is $8,000, and you assume a 10 percent annual increase for the full-risk rate premium (it could be less), and the pre-FIRM continues at a 25 percent annual increase, you will finally reach full-risk premium when the policy renews eight years from now…at about $17,000. Again, the only way to estimate that is to get an Elevation Certificate.

So, by having the EC, insurance agents can determine the full-risk rate for pre-FIRM buildings in high-risk areas. This could be especially important information if that building is being bought or sold and will be used as a secondary home or business. Bottom line: the property owner will have to decide if they really want or need one.

_______________

[1] ECs are not needed to rate in unnumbered V (without BFE), A99, or in Zone AO if a Certificate of Compliance is provided by the community official.  They are also not needed in Zones B, C, D, or X.

[2] Secondary home on a slab; Zone AE; October 2013 rates; $200,000 building/$80,000 contents coverage; Lowest Floor Elevation-Base Floor Elevation=-3’





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