On March 13 the Senate joined the House of Representatives by passing a bill to reverse flood insurance reforms and curb flood insurance premium increases. The “Homeowner Flood Insurance Affordability Act of 2013,” (HFIAA) is on its way to the White House for signature. The White House has expressed concern about rolling back the Biggert-Waters reforms.
Opponents of the bill argued that the Biggert-Waters reforms and the law’s scaling back of premium subsidies, changes intended to address the $25 billion deficit of the NFIP, should be left intact. Some called for a targeted fix to help homeowners in need rather than a broad repeal of the 2012 changes.
Sen. Richard Shelby (R-Ala.) stated, “One of the goals of the reforms was to ensure that the 5.6 million flood insurance policyholders could collect on their policies if they were ever to suffer a flood loss – something that cannot be guaranteed by a flood insurance program that is currently $25 billion in debt. The program is bankrupt and only operating by the grace of the American taxpayer.”
Among other provisions, the HFIAA:
- Limits and delays escrow provisions – Clarifies when escrow is required and delays Biggert-Waters requirements until January 1, 2016.
- Creates a limit 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 HFIAA, 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 disincentivizes property owners from making responsible decisions and could hurt program participation. The HFIAA 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 HFIAA allows grandfathering to continue and sets hard caps on how high premiums can increase annually.
- Refunds to homeowners – Requires FEMA to refund policyholders for overpaid premiums.
- Affordability – Requires FEMA to minimize the number of policies with annual premiums that exceed one percent of the total coverage provided by the policy.
- 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.
HFIAA is good news for some, and bad news for others. We have been anxiously awaiting the revised interagency flood regulations to implement the Biggert-Waters Act. It appears that the HFIAA will delay the interagency regulations, which would have been effective in July 2014, and may override some of FEMA’s regulations, which are effective on June 1, 2014.
Let confusion reign!
A copy of the full bill is available here.