Changes in National Flood Insurance Program Coverage Limits
May 8, 2014
The National Flood Insurance Program (NFIP) was renewed in 2012 with the passing of the Biggert-Waters Flood Insurance Reform Act of 2012. The Act provided for higher coverage limits available to multifamily buildings covered under NFIP policies. Effective June 1, 2014, the maximum NFIP policy coverage limit available for multifamily buildings increases from $250,000 to $500,000 per building. This increase is very positive for borrowers because it will be easier to comply with industry flood insurance requirements, including ours.
Freddie Mac Multifamily expects current borrowers who are required to carry flood insurance to comply with the new limit provisions during the next renewal date of existing NFIP policies following the June 1, 2014, effective date. We will not require borrowers to purchase increased limits midterm during an NFIP policy period.
The Freddie Mac Multifamily Seller/Servicer Guide requirements remain unchanged for insurance coverage. For buildings located in Special Flood Hazard Areas (SFHA), we require flood insurance coverage of at least the greater of the maximum coverage available under NFIP, or an amount no less than the full replacement cost of the bottom two stories above grade, plus the replacement cost of areas below grade. Business income/rental value for flood loss is also required.
In some cases, multifamily buildings might have a replacement cost value less than the $500,000 limit available under NFIP. In these cases, a coverage limit at least equal to the full replacement cost value would be required, plus business income/rental value. If a borrower has private flood coverage policies that renew before the NFIP policies, the borrower should explore increasing the NFIP limits midterm along with the renewal of private flood policies. Borrowers will avoid possible coverage gaps and increases in self-insurance. This is especially important when private flood policies require maximum available NFIP coverage as part of the coverage deductible or attachment point.
We know that you’ve been diligently tracking this issue and are actively sending appropriate notification to borrowers. If you have any questions about NFIP requirements, please contact your Freddie Mac Multifamily Insurance representative. You can also email your questions directly to the Insurance Compliance mailbox.