U.S. senate takes up bill to delay flood insurance premium hikes

WASHINGTON – Bipartisan legislation that would delay flood insurance premium hikes for hundreds of thousands of people living in coastal and low-lying areas appears set to clear its first hurdle in the Senate on Monday.

The legislation would delay for up to four years premium increases set to phase in next year on homeowners facing whopping premium increases under new flood maps and would allow homeowners with subsidized insurance policies to pass them on to people who buy their homes.

The higher premiums are the result of changes made to the federal flood insurance program less than two years ago – widely praised as long-overdue reforms of the program – that were designed to make it more financially stable and bring insurance rates more in line with the real risk of flooding.

But the new rates have caused sticker shock for hundreds of thousands of people who could face big premium jumps as flood maps are updated in coming years. And the loss of subsidies when homes are sold has put a damper on the real estate market and threatened home values. Homeowners are seeing estimates that in many cases would force premium hikes of ten times or more as their homes are judged to be at greater risk of flooding.

“It’s had a significant impact in the flood-prone areas,” said Ken Baris, a real estate agent in West orange, New Jersey. “There’s lots of people who are seeing their equity being eaten up.”

Other reforms, including higher premiums for frequently-flooded properties and on second homes would remain in place.

Clearing the first Senate hurdle would put the bill on track for Senate action later in the week.

At issue is the federal flood insurance program that was established in 1968 and has incurred big losses, most recently with Superstorm Sandy in 2012. It is more than $24 billion in debt to taxpayers for losses from big storms like Sandy and Hurricane Katrina in 2005.

The 2012 overhaul of the program made several changes to the program, which helps 5.6 million policyholders, 20 per cent of whom receive subsidized policies for older homes built before communities joined the flood insurance program. Owners of second homes, frequently-flooded properties and businesses in flood areas would gradually lose their subsidies and pay 25 per cent more a year until they reach an actuarially sound rate. Others get to keep their subsidies but can’t pass them on when selling their homes.

The 2012 law also phases out below-market rates for owners of “grandfathered” properties _ those that were built in compliance under earlier flood risk estimates but whose flood risks have increased under new maps. Those homeowners would see their flood risks re-estimated and would see higher rates phased in over five years. Other homeowners, whose premiums currently subsidize those with grandfathered rates, could see their rates go down.

Opponents of Monday’s legislation say it would effectively gut the 2012 measure. The Congressional Budget Office says the legislation, co-sponsored by Sens. Robert Menendez, D-N.J., and Johnny Isakson, R-Ga., would mean the reduced premiums paid for flood insurance program by $2 billion over the coming decade. The program takes in about $3.5 billion a year.

“It may be politically expedient and popular locally to delay map modernization or delay rate increases. But what may make good local politics generally makes bad insurance policy – and by extension with federal flood insurance – bad public policy,” said Steve Ellis, vice-president of Taxpayers for Common Sense, a Washington-based watchdog group. “People deserve to know the cost and risks of where they live. And taxpayers deserve to have those who choose to live in harm’s way pick up their share of the tab.”

The 2012 overhaul swept through with near-unanimous support but its implementation by the Federal Emergency Management Agency has come under assault.