Statutory Discounts

Statutory discounts are legislated incentives within the NFIP designed to encourage participation and ensure affordability for policyholders.

Purpose of Statutory Discounts

• Encourage participation in the NFIP, especially during its early stages.
• Provide benefits for communities transitioning into the regular NFIP program.

Key Discount Types

Pre-Firm Discounts

• Applies to buildings constructed before a community joined the NFIP.
• Based on Flood Insurance Rate Maps (FIRMs).
• Transitioning to actuarial-based pricing under Risk Rating 2.0.
  • Phased out via "glide path" methodology with capped annual rate increases (18-25% per year).
  • Aim to gradually eliminate subsidies over time.

Newly Mapped Discounts

• Applies to properties reclassified from low-risk to high-risk areas.
• Allows gradual premium increases using the glide path.
• Ensures affordability as homeowners transition to mandatory flood insurance requirements.

Phasing Out of Discounts

• Gradual removal of discounts using the glide path.
  • Annual increase caps prevent steep rate hikes.
  • Capped rate increases balance affordability with transitioning to actuarial rates.
• Lapses in coverage result in losing discounts.
• Transition scenarios include:
  • Moving from buildings under construction to finished structures.
  • Loss of statutory benefits after coverage lapse.

Real Estate Transaction Discounts

• Transferable discounts for properties insured under an NFIP policy and sold within the last year.
• Replaces legacy grandfathering systems.
• No prior declarations page required; proof is shown via settlement documents or deeds.

Modern Transition under Risk Rating 2.0

• Focus on actuarial-based rating while maintaining statutory discounts.
• Eliminates reliance on legacy systems like grandfathering.
• Utilizes modern documentation requirements for discount eligibility.

Conclusion

Statutory discounts remain critical for promoting NFIP participation while balancing affordability and transitioning to risk-based premiums.

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