The new cap on NFIP premium increases rises from 10 to 20%

A provision of the new NFIP legislation just signed into law by President Obama includes a rise to the annual premium increase cap previously in place from 10% to 20%. At Fidelity we anticipate the NFIP to administer the annual premium increases as they have traditionally with a goal of adjusting premium rates closer to actuarial based rates. This would assign the greatest annual premium as well as annual premium increases to those properties greatest at risk for flooding. It is important to note that the previous cap of 10% in place for many years was rarely met and for the past 3 years has resulted in premium increases closer to 4% overall.

  • Traditionally the NFIP institutes changes to the federal flood program, including annual rate adjustments either in May or October each year.
  • Annual premium increases have been administered with a cap previously so we anticipate that the methods used in the past will apply up to the new limit of 20% on average-not across the board.  
  • Typically, the NFIP increases the premium rates varying amounts to various rate classes ensuring that the average increase is no higher than the cap in place, which is now 20%.
  • Historically, rate classes responding to properties at greatest risk and/or those with rates least actuarially based are increased more; while those properties in rate classes that are least subsidized and rated as low to moderate risk will be least changed.
  • Therefore, judged as a whole, and on average, the anticipated premium increase will surely not exceed the 20% cap as legislated.

NFIP flood insurance is a highly regulated federal program that is administered to act as a flood insurance product, although some differences remain in relation to other traditional insurance. Therefore, we should all be mindful as a federal program the NFIP must follow the legislation enacted by Congress, with rules and regulations under the control of FEMA and the US Dept. of Homeland Security. Write your Own (WYO) insurance companies, of which Fidelity National Indemnity insurance Company is the largest in the nation, are appointed by FEMA to market federal flood insurance policies. Licensed insurance agents, with appointment to a WYO or directly with the NFIP, can offer flood insurance to property owners in over 21,000+ participating communities in the U.S.