San Francisco, CA -- The Federal Emergency Management Agency (FEMA) today announced that it will extend the low premium rates for residents of Los Angeles-area communities who purchased flood insurance under a special preferred risk policy for AR zones. AR zone residents with preferred risk policies that became effective prior to July 6, 1998, will be able to renew their insurance at the preferred risk rate until July 5, 2000, extending the low preferred risk rate an additional two years.
Flood maps with AR zone designations that went into effect on July 6, 1998, reflect the high flood risk that 14 Los Angeles-area communities face while improvements are being made to levee systems. Upon restoration of the levee systems, the requirement for flood insurance will be lifted. The zone includes parts of Bellflower, Carson, Compton, Downey, Gardena, Lakewood, Long Beach, Los Angeles City, Los Angeles County, Lynwood, Montebello, Paramount, Pico Rivera and Southgate.
Many Los Angeles area residents qualified for the preferred risk policy, a low-cost flood insurance policy with building and contents coverage combinations, prior to the establishment of AR zones. Following a nationwide assessment of the preferred risk rate, it was determined that these policies should not be "grandfathered" into high risk flood zones if these low rates were to be supported on a financially sound basis. While this decision was reasonable and appropriate on a national scale, it coincided with the implementation of the Los Angeles AR zone public information effort that advertised the availability of low insurance premiums.
When policies were renewed after one year, all AR zone preferred risk policyholders were required to use the standard zone X minimal flood hazard area rates. Now that renewal bills are arriving, reflecting current NFIP policy of offering coverage at standard X zone rates, people are feeling the impact of this decision. Renewal at the standard X zone rate, even without the contents coverage that is part of the preferred risk policy package, represents a 38% increase in premium. With the continuation of the contents coverage, the premium increase is almost double. The timing of the national policy decision and its impact upon AR zone communities prompted the NFIP to extend the preferred risk rates an additional two years.
"We appreciate that members of Congress and local officials have brought to our attention the concern of their constituents regarding AR zones," said FEMA Director James Lee Witt.
Policyholders who have already paid the higher X zone rate upon renewal of their original preferred risk policy, can now contact their insurance agent, request that their policies be returned to the original preferred risk rate and ask for a return of the overpayment. Since this decision has just been reached, insurance companies will need time to adjust their administrative operations to provide the refunds.
Federal law requires communities participating in the National Flood Insurance Program (NFIP) to ensure that new construction in flood hazard areas meets minimum building standards to protect property. The law also requires flood insurance in connection with loans from federally regulated lenders and/or when applying for or receiving certain types of government aid.
FEMA administers the National Flood Insurance Program, which makes flood insurance available in communities that adopt and enforce flood plain management regulations. The NFIP is largely self-supporting. Claims and operating expenses are paid from policyholder premiums.
Nationwide, more than 4 million flood insurance policies are in force in more than 18,700 communities, with more than 380,000 policies in force in California. These policies represent more than $460 billion worth of insurance coverage nationwide.