US House Passes Homeowner Flood Insurance Affordability Act

The HR. 3370 Bill – Homeowner Flood Insurance Affordability Act – moved a step closer to bringing into law the legislation that will roll back the huge price increases in flood insurance that followed the 2012 Biggert-Waters law.

The house passed the act bipartisan legislation by a 306 to 91 vote. The Senate previously approved the legislation on 30 January 2014. It is hoped by supporters of the bill that the Senate will vote on the House legislation in the next few days, possibly later this week.

Biggert-Waters and Insurance Price Hikes
The Homeowner Flood Insurance Affordability Act reverses much of the legislation of the Biggert-Waters Flood Insurance Reform Act of 2012, which was itself a reaction to the huge costs of the National Flood Insurance Program (NFIP). NFIP is managed by the Federal Emergency Management Agency (FEMA), and the program currently has a huge deficit of $24 billion, mostly as a result of the destruction caused by Hurricane Katrina and Hurricane Sandy.

According to FEMA, the Biggert-Waters bill required the NFIP

“to raise rates to reflect true flood risk, make the program more financially stable, and change how Flood Insurance Rate Map (FIRM) updates impact policyholders. The changes will mean premium rate increases for some—but not all—policyholders over time. Homeowners and business owners are encouraged to learn their flood risk and talk to their insurance agent to determine if their policy will be affected by BW-12.”

Biggert-Waters was responsible for dramatic increases in flood insurance costs for homeowners across the country. There have been some incidents where flood insurance costs for one homeowner in Florida have risen from $3,000 per year to $24,000 per year. In October, Bloomberg reported that flood insurance was “jumping sevefold” in some area.  In St. Charles Parish, Louisiana, residents were told they needed to pay $23,000 per year for their NFIP flood insurance.

House Amendments

Yearly Increases Limited to 18% for Individuals
The bill as it was originally presented on 22 February 2014 focussed on flood zones rather than individual properties, placing a limit on the average annual percentage rate increase for each zone. There was a fear that this could still mean some individual homeowners could be badly hit by increased insurance costs. Therefore the House also placed a cap for individual property owners. With these amendments, increases in insurance rates for individual homeowners are limited to no more than 18% in a year, and the overall average increase for each flood category is limited to 15%.

New Buyers Pay Subsidized Rates
The bill also allows new buyers of property covered by the NFIP program to pay a subsidised insurance rate at first. Insurance premiums will no longer immediately rise to market rates if a home is sold, an issue that was playing havoc with some housing markets, particularly in Louisian and Florida.

Grandfather Clause
The House legislation also addresses “the grandfather clause” by reversing a provision in Biggert-Waters that increases insurance premiums when FEMA adopts new flood maps. Subsidized rates for homes that were in compliance under FEMA’s old rules will remain.

Sources: USA Today; NOLA; Bloomberg