Statutory Discounts: Difference between revisions
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Statutory discounts are legislated incentives within the NFIP designed to encourage participation and ensure affordability for policyholders. | Statutory discounts are legislated incentives within the NFIP designed to encourage participation and ensure affordability for policyholders. | ||
* Encourage participation in the NFIP, especially during its early stages. | * Encourage participation in the NFIP, especially during its early stages. | ||
* Provide benefits for communities transitioning into the regular NFIP program. | * Provide benefits for communities transitioning into the regular NFIP program. | ||
== | == Statutory Discount Glidepath == | ||
* Gradual removal of discounts. | |||
** 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. | |||
=== Pre-Firm Discounts === | === Pre-Firm Discounts === | ||
* Applies to buildings constructed before a community joined the NFIP. | * Applies to buildings constructed before a community joined the NFIP. | ||
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* Ensures affordability as homeowners transition to mandatory flood insurance requirements. | * Ensures affordability as homeowners transition to mandatory flood insurance requirements. | ||
== Real Estate Transaction Discounts == | == Real Estate Transaction Discounts == | ||
Revision as of 13:59, 2 December 2024
Statutory discounts are legislated incentives within the NFIP designed to encourage participation and ensure affordability for policyholders.
- Encourage participation in the NFIP, especially during its early stages.
- Provide benefits for communities transitioning into the regular NFIP program.
Statutory Discount Glidepath
- Gradual removal of discounts.
- 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.
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.
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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