In my post last week, I mentioned that the National Flood Insurance Program will implement certain changes which go into effect on June 1, 2014. The changes are primarily a result of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12). The Federal Emergency Management Agency (FEMA) published a summary of the changes in WYO Bulletin W-13070, dated December 16, 2013.

One of the changes is the definition of the term “primary residence” for new business and renewal Pre-FIRM subsidized residential single-family dwelling (including condominium unit) policies that are effective on or after June 1, 2014.

As stated in the Bulletin:

Section 100205 of BW-12 requires FEMA to phase out Pre-FIRM subsidized rates for non-primary residences. On January 1, 2013, the NFIP began implementing this provision using an 80-percent occupancy threshold. Effective June 1, 2014, the NFIP will implement this provision by defining primary residence to be a building that will be lived in by the insured or the insured’s spouse for more than 50 percent of the 365 days following the policy effective date.

Whether or not the insured premises meets the definition of primary residence is important for purposes of determining whether the insured would be able to recover replacement cost value (RCV) or actual cost value (ACV) under the Standard Flood Insurance Policy (SFIP). This is explained in the Bulletin:

To be eligible for replacement cost under the SFIP, the dwelling must be the insured’s “principal residence” (i.e., the insured must live in the dwelling for 80 percent of the 365 days preceding the loss), and the dwelling must be insured 80 percent or more of its full replacement cost or the maximum amount of insurance available under the NFIP. If the dwelling only meets the definition of a “primary residence,” and not the definition of “principal residence” in the SFIP, then any claim for building damages will be paid using Actual Cash Value. . .

Also, at least 90 days prior to the policy renewal date, insurers must send notice (which is Attachment C to the Bulletin) to all Pre-FIRM subsidized residential single-family dwelling policyholders (including condominium unit owners) to inform them of the revised definition of primary residence and the acceptable documentation needed to verify eligibility for the primary residence Pre-FIRM subsidy.

Examples of the documentation which a policyholder or a policyholder’s spouse may submit in order to substantiate primary residence status includes: driver’s license; automobile registration; proof of insurance for a vehicle; voter’s registration; documents showing where children attend school; or Homestead Tax Credit Form for Primary Residence.

If the insurer does not receive the required documentation from the policyholder, the policy must be renewed as a non-primary residence and will receive the phased-in rate increase required by BW-12.

In Bulletin W-14001, dated January 16 2014, FEMA provided updated information for the June 1, 2014 Program Changes, which included a revised notice for policyholders to verify their primary residence status.

On April 24, 2014, FEMA issued Bulletin W-14016, which provided:

When selecting a Pre-FIRM subsidized rate for a policy rated as a single-family dwelling, or a condominium unit covered under the Dwelling form within a 2-4 family dwelling or other-residential building, the non-primary residence rates available in the June 1, 2014, edition of the NFIP FIM must be used if there is no documentation of primary residence.

The WYO Companies and DSA must mail to the affected policyholders the Notice to Residential Policyholders provided with Bulletin W-14001 issued on January 16, 2014.

For rating as a primary residence, if documentation of primary residence is not available when a policy is applied for on a newly purchased dwelling, insurers must obtain a signed and dated statement from the insured with the text below:

“<Insured Property Address>
The above address is my primary residence, and I and/or my spouse will live at this location for more than 50 percent of the 365 days following the policy effective date.

PURSUANT TO 28 U.S.C. § 1746 I CERTIFY UNDER PENALTY OF PERJURY UNDER THE LAWS OF THE UNITED STATES OF AMERICA THAT THE FOREGOING IS TRUE AND CORRECT. I UNDERSTAND THAT ANY FALSE STATEMENTS MAY CAUSE MY POLICY TO BE VOID, AND MAY BE PUNISHABLE BY FINE OR IMPRISONMENT UNDER APPLICABLE FEDERAL LAW.”

  • David Thompson

    Actually, there is a difference between a “primary” and a “principal” residence. This was brought to us by “BW-12.”

    A “primary” residence is one that is lived in by the named insured and/or spouse for more than 50 percent of the 365 days following the policy effective date. This is key when determining whether a 25 percent surcharge will be applied to a pre-FIRM subsidized policy. Prior to 6/1/14, the threshold for the surcharge was 50 percent. On 6/1/14 and later, the 50 percent changes to 80 percent. If the named insured and/or spouse do not live in the residence for at least the 80 percent threshold, then the residence is “non-primary” and will experience the 25 percent surcharge.

    A “principal” residence has (for at least my 29 years in the insurance industry) always meant that the named insured and/or spouse occupied the residence for at least 80 percent of the 365 days prior to the flood loss. This is key in determining whether replacement cost loss settlement applies for some building items under the NFIP policy.

    With the 6/1/14 change, we have several scenarios that could come into play.

    Primary and principal are confusing. It is important to read the NFIP manual and FEMA bulletins to fully understand the situation.

    David Thompson, CPCU, AAI, API, CRIS
    Florida Association of Insurance Agents
    Tallahassee, FL

  • Clifford Easley

    Sirs,

    I am not confused, we are primary residence, so why are we required to pay the surcharge ??

    Clifford Easley
    ceasley@grandecom.net