| March 20, 2014
Bill awaiting President’s signature will helpLegislation
that forestalls onerous increases in federal flood insurance has been
sent to the President, who is expected to sign it, giving coastal
realtors and homeowners much-welcomed relief from fears of financial
with onerous increases in flood insurance
BY CATHERINE KOZAK
Known as the Homeowner Flood Insurance Affordability
Act, the bill limits annual premium increases to no more than 18
percent and restores the grandfather clause that allows older homes to
continue to be subsidized.
The bi-partisan bill, HR 3370,
which recently passed the House of Representatives and the Senate, is
responding to the outcry across the country when the 2012
Biggert-Waters Flood Insurance Reform Act started being implemented
last year, with four million or so policyholders facing huge spikes in
flood insurance bills.
Suddenly, homeowners were getting
renewal notices that said their rates for flood policies, required by
banks on mortgaged property in flood zones, could increase as much as
200 percent. Others discovered that if they sold their property, the
new owner would have to pay enormous increases for the same policy.
Willey, owner of insurance firm The Willey Agency in Nags Head, said
that the new legislation corrects some of the “overzealous” rate
changes that were in Biggert-Waters and provides more time for
“You cannot turn such a large program on a
dime,” Willey said about the National Flood Insurance Program, which is
seriously in debt. “This is a better way to save the program.”
of second homes built prior to 1975, or when their community’s flood
maps were drawn, learned last January that their rates would increase
25 percent per year, up to an average increase of 150 percent. Then in
October, owners of commercial property and repetitive loss properties
were sent notices of similar increases.
Those with second
homes in a flood zone and owners of properties that have had repeated
flood claims will continue to have the 25 percent annual increase until
the actuarial rate reflecting the real risk is reached.
But other provisions have been reversed.
rates based on the flood rating when a structure was built – called a
pre-FIRM rate -- were scheduled to expire in late 2014. Under that
provision, increases in premiums were going to be phased in with 20
percent increases over five years.
Ultimately, premiums had
been expected to increase as much as 200 percent or more. But the new
law will allow the grandfathered rates to continue for primary
residences –those that are lived in 80 percent of the year.
had also discontinued the pre-FIRM rates on new flood policies, which
resulted in large spikes in premiums for new owners in real estate
transactions. Under the Affordability Act, the new owner can be
assigned the same rate as the previous owner.
“This is going to be a really good thing for the real estate industry,” Willey said.
Refunds will also be provided under the new law for home purchasers who had to pay the unsubsidized rates under Biggert-Waters.
in premiums under the flood insurance program, which is administered by
the Federal Emergency Management Agency, are still allowed under the
new law, but they will not be as steep. Subsidized policies will be
funded in part by a $25 surcharge- - $250 for second homes -- on each
of the programs 5.6 million policyholders.
As FEMA readies to
issue new flood maps, the new law would require the agency to collect
public input from the community and to factor in existing flood
protection measures. It also would mandate a study on ways to keep the
flood insurance program affordable while working toward making it
solvent. The goal stated in the law is for policyholders to have a
premium that equals no more than 1 percent of the value of their
But Willey said that even if the bill is
implemented, as expected, the important work of what flood policies
will be covering, at what rate, has yet to be determined.
“We just know what Congress decided,” he said. “We don’t know what the rate tables will look like.”
FOR MORE INFORMATION
Click here to read the text of the Homeowner Flood Insurance Affordability Act.