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 while they transition to full risk rating. | ||
* 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 | === Statutory Discount Glide Path === | ||
The glide path is a phased approach used to gradually eliminate subsidies provided through NFIP statutory discounts. Under this method, policyholders see annual premium increases capped at 18–25%, ensuring a manageable transition from lower premiums to actuarial-based pricing while maintaining affordability over time. | |||
* Annual increase caps prevent steep rate hikes. | |||
* Capped rate increases balance affordability with transitioning to actuarial rates. | |||
* Lapses in coverage result in losing discounts. | * Lapses in coverage result in losing discounts. | ||
* Transition scenarios include: | * Transition scenarios include: | ||
Revision as of 14:05, 2 December 2024
Statutory discounts are legislated incentives within the NFIP designed to encourage participation and ensure affordability for policyholders while they transition to full risk rating.
- Encourage participation in the NFIP, especially during its early stages.
- Provide benefits for communities transitioning into the regular NFIP program.
Statutory Discount Glide Path
The glide path is a phased approach used to gradually eliminate subsidies provided through NFIP statutory discounts. Under this method, policyholders see annual premium increases capped at 18–25%, ensuring a manageable transition from lower premiums to actuarial-based pricing while maintaining affordability over time.
- 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.
Statutory 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.
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.
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