On Tuesday, March 4, 2014 The U.S. House of Representatives passed legislation to curb some of the premium increases in the nation’s flood insurance program that have been causing “sticker shock” for property owners. The measure reverses some of the changes to the National Flood Insurance Program (NFIP) introduced by the Biggert-Waters Flood Insurance Reform Act of 2012.
The House version, known as the Grimm-Waters bill would provide retroactive refunds for people who have had large flood insurance rate increases due to the sale or purchase of a home, cap average annual premium increases at 15 to 18 percent and allow subsidies for insurance rates that are based on current flood maps. It also includes non-mandatory language directing the Federal Emergency Management Agency to “strive to minimize the number of policies with annual premiums that exceed one percent of the total coverage.” The House bill also requires FEMA, which administers the flood program, to notify communities and members of Congress of remapping as well as models used in the mapping process. In addition, it includes assessments on property owners to build up an NFIP reserve fund.
Senator Robert Menendez (D-NJ) said he had been working closely with House and Senate leaders to ensure the House bill would provide adequate relief to homeowners. Menendez said the House legislation “closely parallels” the Senate bill. He went so far as to refer to the final bill as the Menendez/Grimm Homeowner Flood Insurance Affordability Act of 2014. His office provided the following summary of the bill:
- Prevents Skyrocketing Rate Increases
- Creates a firewall on annual rate increases – Prevents FEMA from raising the average rates for a class of properties above 15% and from raising rates on individual policies above 18% per year for virtually all properties.
- Repeals the property sales trigger – Repeals the provision in Biggert-Waters that required homebuyers to pay the full-risk rate for pre-FIRM properties at the time of purchase. This provision caused property values to steeply decline and made many homes unsellable, hurting the real estate market. Under the Menendez/Grimm Bill, homebuyers will receive the same treatment as the home seller.
- Repeals the new policy sales trigger – Repeals the provision in Biggert-Waters that required pre-FIRM property owners to pay the full-risk rate if they voluntarily purchase a new policy. This provision discourages property owners from making responsible decisions and could hurt program participation. The Menendez/Grimm Bill allows pre-FIRM property owners to voluntarily purchase a policy under pre-FIRM conditions.
- Reinstates grandfathering – Repeals the provision in Biggert-Waters that would have terminated grandfathering. If grandfathering was terminated, property owners mapped into higher risk would have to either elevate their structure or have higher rates phased in over 5 years. The Menendez/Grimm Bill allows grandfathering to continue and sets hard caps on how high premiums can increase annually.
- Refunds homeowners who overpaid – Requires FEMA to refund policyholders for overpaid premiums.
- Affordability goal – Requires FEMA to minimize the number of policies with annual premiums that exceed one percent of the total coverage provided by the policy.
- Additional features
FEMA Transparency and Outreach Requirements:
- Reimburse successful appeals – Allows FEMA to utilize the National Flood Insurance Fund to reimburse policyholders and communities that successfully appeal a map determination. FEMA currently has the authority to reimburse successful appeals of map findings, but Congress has never appropriated funding for this purpose. Making appeal reimbursement an eligible expense of the NFIF would give FEMA the incentive to “get it right the first time” and repay homeowners and communities for contributing to the body of flood risk knowledge, according to backers.
- Flood insurance advocate – Establishes a Flood Insurance Advocate within FEMA to answer current and prospective policyholder questions about the flood mapping process and flood insurance rates. The advocate will be responsible for educating policyholders about their individual flood risks, their options in choosing a policy, assisting property owners through the map appeals process, and improve outreach and coordination with local officials, community leaders, and Congress.
- Urban mitigation fairness – Requires FEMA to establish guidelines on alternative mitigation methods for urban structures where tradition mitigation efforts such as elevation are impractical, i.e. row houses in Hoboken. This section makes clear that such alternative forms of mitigation shall be taken into account in the calculation of risk premium rates.
- Clear communication – Requires FEMA to clearly communicate full flood risk determinations to policyholders even if their premium rates are less than full risk. This helps to inform policyholders as to their true flood risk.
- Fairness for small businesses, houses of worship, non-profits and low-income homes – Requires FEMA to report to Congress on the impacts of rate increases on small businesses, non-profit entities, houses of worship, and residences with a value equal to less than 25% of the area median home value. If FEMA determines there is an effect on affordability for these properties, it must provide recommendations to Congress within 3 months after making the determination.
- Mapping accuracy – Requires FEMA to certify its mapping process is technologically advanced and to notify and justify to communities that the mapping model it plans to use to create the community’s new flood map are appropriate. Also requires FEMA to send communities being remapped the data being used in the mapping process.
- Notification – Requires FEMA, at least 6 months prior to implementation of rate increases as a result of this Act to make publicly available the rate tables and underwriting guidelines that provide the basis for the change, providing consumers with greater transparency.
Reprinted in part from: http://www.