Canadian Underwriter
News

U.S. President Obama to sign Homeowner Flood Insurance Affordability Act into law


March 14, 2014   by Andrew Taylor THE ASSOCIATED PRESS


Print this page Share

United States president Barack Obama is set to sign into law a bill relieving homeowners living in flood-prone neighbourhoods from big increases in their insurance bills.

The legislation, which cleared Congress on Thursday, reverses much of a 2012 overhaul of the government’s much-criticized National Flood Insurance Program (NFIP) after angry homeowners facing sharp premium hikes protested.

The Senate’s 72-22 vote sent the House-drafted measure to Obama. White House officials said he will sign it.

Obama to sign flood insurance bill into law

NFIP, which was introduced in 1968, lets some residential and commercial owners and tenants get flood insurance premiums subsidized. The insurance is written by the private sector but the rates do not differ among carriers and agents. In order to qualify for flood insurance under NFIP, the property must be in a community that has joined the NFIP and agrees to enforce sound floodplain management standards.

Photo by George Armstrong. Courtesy of the United States Federal Emergency Management Agency 

NFIP currently has a deficit of US$24 billion, mostly because of huge losses from Hurricane Katrina and Superstorm Sandy.

The bill that Congress sent Thursday to Obama – the Homeowner Flood Insurance Affordability Act of 2013 – significantly rewrites the Biggert-Waters Flood Insurance Reform Act of 2012.

The Homeowner Flood Insurance Affordability Act bill will scale back big flood insurance premium increases faced by hundreds of thousands of homeowners under the Biggert-Waters law. That law mandated a phase-out of subsidies for insurance premiums for properties such as non-primary residences, severe repetitive loss properties, business properties as well as “properties that have incurred flood-related damages where claims payments exceed the fair market value of the property,” according to the Federal Emergency Management Agency.

When passed into law, the Homeowner Flood Insurance Affordability Act will allow below-market insurance rates to be passed on to people buying homes in flood zones with taxpayer-subsidized policies.

Critics say Washington is caving to political pressure to undo one of the few recent overhauls it has managed to pass.

“While politically expedient today, this abdication of responsibility by Congress is going to come back and bite them and taxpayers when the next disaster strikes,” said Steve Ellis, vice-president of Taxpayers for Common Sense, a Washington-based watchdog group. “Everyone knows this program is not fiscally sound or even viable in the near term.”

The hard-fought Biggert-Waters Flood Insurance Reform Act of 2012 was aimed at weaning hundreds of thousands of homeowners off of subsidized rates and required extensive updating of the flood maps used to set premiums. But its implementation stirred anxiety among many homeowners along the Atlantic and Gulf coasts and in flood plains, many of whom are threatened with unaffordable rate increases.

The bill passed by the Senate Mar. 13, 2014 offers its greatest relief to owners of properties that were originally built to code but subsequently were found to be at greater flood risk. Such “grandfathered” homeowners currently benefit from below-market rates that are subsidized by other policyholders, and the new legislation would preserve that status and cap premium increases at 18 per cent a year. The 2012 overhaul required premiums to increase to actuarially sound rates over five years and required extensive remapping.

Many homeowners faulted the Federal Emergency Management Agency’s implementation of the 2012 law. In some instances, homeowners from areas that had never been flooded were shocked and frightened by warnings of huge, unaffordable premium increases. The resulting uproar quickly got the attention of lawmakers and peppered them with complaints.

“In many cases, these are people with $100,000 homes that are getting (flood insurance) bills that are more than their mortgage payments,” said John Fleming, the Republican lawmaker representing the 4th Congressional District of Louisiana in the House of Representatives. “You had certainly a significant number of people who were really going to be hurt seriously through no fault of their own.”

The top leaders of both parties came on board, overcoming resistance from defenders of the 2012 overhaul like House Financial Services Committee Chairman Jeb Hensarling, R-Texas, whose turf was trampled along the way.

“Members on both sides of the aisle and a broad geographic distribution got involved. And when you get enough members involved, it’s going to get the attention of the leadership, and that was a major factor,” said Republican Represenative Charles Boustany of Louisiana.

Another provision, eagerly sought by the real estate industry, would allow sellers of older homes built before original flood insurance risk maps were drafted to pass taxpayer-subsidized policies on to the people buying their homes instead of requiring purchasers to pay actuarially sound rates immediately, as required by the 2012 law. The new rates are particularly high in older coastal communities in states like Florida, Massachusetts and New Jersey, and have put a damper on home sales as prospective buyers recoil at the higher, multifold premium increases.

The measure also would give relief to people who bought homes after the changes were enacted in July 2012 and therefore faced sharp, immediate jumps in their premiums; they would see those increases rolled back and receive rebates. Separate legislation by Sen. Mike Lee, R-Utah, would make sure that rebates would not go to recent buyers of beach houses and other second homes. It passed the Senate Thursday and is likely to get a vote in the House.

“While it is important to put this program on sound financial footing, middle-class families should be able to afford the insurance they need to stay in their homes,” White House spokesman Bobby Whithorne said.

Thursday’s bill was written by House Majority Leader Eric Cantor, R-Va., and Rep. Michael Grimm, R-N.Y., with input from Democrats like Rep. Maxine Waters of California, whose votes were critical to House passage last week.

“We’ve solved a very short-term problem and made it a long-term problem,” said Sen. Tom Coburn, R-Okla. “We didn’t really do our work because we were in such a hurry to take the political pressure off of the increases in the flood insurance rates.”

People whose second home is in a flood zone and those whose properties have flooded repeatedly would continue to see their premiums go up by 25 per cent a year until reaching a level consistent with their real risk of flooding.


Print this page Share

Have your say:

Your email address will not be published. Required fields are marked *

*