Since the beginning of the National Flood Insurance Program (NFIP) owners of buildings that found themselves too low in the flood zone through no fault of their own have been given a break on their flood insurance premiums. These properties have been insured by the NFIP,  at rates that do not reflect the true risk of flood damage. The policies are subsidized by the NFIP. The NFIP can borrow from the U.S. Treasury when premium collections are not sufficient to pay claims, but that loan must be repaid.

The no fault part of this condition means one of two things:

1. The building was built before 1975 or before the community (governing jurisdiction) received its first Flood Insurance Rate Map (FIRM). These properties are insured at Pre-FIRM rates, unless the owner shows by an official elevation survey that the building is NOT too low and elects to be rated based on elevation.
2. The building was built Post-FIRM, in compliance with a FIRM, with a permit from the community, but a more recent FIRM shows the building to be at greater risk of flooding. These buildings have been grandfathered administratively, and allowed to keep the rate-class (flood zone and building elevation relative to BFE) that applied at the time of construction.

Discounted insurance rates are being discontinued for all properties except Pre-FIRM primary residences that have not lost their qualification for the rate. (See How Residential Property Loses its Pre-FIRM Rating, below.)

1. Pre-FIRM rates are being discontinued for all business properties and other buildings that are not someone's primary residence. Pre-FIRM rates for currently insured properties expire with termination of an existing policy and are not available for a new policy on the property. Currently insured properties that no longer qualify for Pre-FIRM rates will see their premiums increase 25% per year until actuarial rates are achieved.
2. Grandfathered rates are being discontinued, with premium increases toward actuarial rates being phased in over a 5-year period, 20% of the increase being added each year.  The five-year period begins on the Effective Date of the FIRM that identifies the increased risk. For example, if the actuarial rate is $1000 per year more than the subsidized rate, the premium would increase $200 per year for five years.

A Pre-FIRM primary residence will lose its qualification for Pre-FIRM rates under the following conditions and situations:

• When the policy-holder intentionally let the policy lapse.
• When the property is sold. A new policy cannot be written at Pre-FIRM rates.
• If, after July 6, 2012, the building is improved and the cost of improvement is more than 30% of the fair market value of the building before improvements were begun.
• If, after July 6, 2012, the building is substantially damaged and the cost to restore it to its pre-damaged condition is 50% of the fair market value of the building before damage occurred. For substantial damage, the “cost” is the cost to restore the building to its pre-damage condition - even if you don’t plan to spend that much or to restore it fully. It also includes the cost of discretionary improvements you plan to make as part of the restoration project.
• If the flood insurance claims history on the building meets one of the following criteria:
  • Total NFIP claims paid for flood-related building damage exceed the fair market value of the building
  • The property is a severe repetitive loss (SRL) property – A single family property with 1-4 residences is an SRL property if it has incurred flood-related damage resulting in four or more claims payments for building damage that exceed $5,000 each, OR, two claims payments for building damage that together exceed the value of the insured building.
• If the owner of a repetitive loss property refuses an offer of mitigation assistance (to raise or relocate the building), including an offer under the Hazard Mitigation Grant Program (HMGP)

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