NFIP November 1, 2015 Program Changes Will Affect Business Structures

The Biggert Waters Act of 2012 (BW-12) requires FEMA to phase out Pre-FIRM (“subsidized”) rates on Non-Residential buildings used for business purposes. Starting November 1, 2015, the following changes will take effect, which will substantially increase insurance premiums on Non-Residential buildings used for business purposes.

Starting November 1, 2015, the current Non-Residential building category will be divided into two categories:

  • Non-Residential Business
  • Other Non-Residential

This requirement to identify business properties within the larger Non-Residential occupancy category will begin for all Non-Residential policies as they renew after November 1, 2015. Policyholders will be required to complete the Non-Residential Building Use Questionnaire for each such policy as it renews.

For rating purposes, the “Non-Residential Business” refers to a building where a licensed commercial enterprise is carried out to generate income and coverage is for one of the following:

  • (a) a building designed as a non-habitational building;
  • (b) a mixed-use building in which the total floor area devoted to commercial uses exceeds 25{b73b969d192d8eafaea0090998e86317c7e4c69160e33071b50feed6bdb2d318} of the total floor area within the building; or
  • (c) a building designed for use as office or retail space, wholesale space, hospitality space, or for similar uses.

Properties that have been used as houses of worship, other non-profit entities, community recreation buildings and garages will be categorized as “Other Non-Residential”.

The premium increases for Pre-FIRM (“subsidized”) Non-Residential Business properties will be 25{b73b969d192d8eafaea0090998e86317c7e4c69160e33071b50feed6bdb2d318} per year as stated in the BW-12 legislation. These increases on Pre-FIRM business policies will be applied with the next set of NFIP Program changes in 2016. Other Non-Residential properties will not be affected by this rate increase as Section 5 of the Homeowners Flood Insurance Affordability Act (HFIAA) limits premium increases to no more than 18{b73b969d192d8eafaea0090998e86317c7e4c69160e33071b50feed6bdb2d318} per year on Other Non-Residential properties.

The NFIP refund rules will be changed to allow for prior-term refunds for certain cancellations and policy changes (endorsements). In such cases, refunds will be restricted to 5 years instead of 6; this is to match the Federal requirement to retain policy records for 5 years. In addition, for certain other types of policy cancellations, the NFIP will limit the premium refunds to the current policy term only.

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