Nearly two years after passing sweeping reforms to the debt-riddled National Flood Insurance Program (NFIP), Congress has passed a bipartisan bill that aims to ease the transition process for certain costal homeowners in the United States.
The Homeowner Flood Insurance Affordability Act of 2013 (HFIAA) will slow down the pace of flood insurance rate hikes and give property owners time to adjust to changes in flood insurance premiums.
Sen. Jeff Sessions and U.S Rep. Bradley Byrne supported the bill, which has passed both bodies of Congress and the president is expected to sign.
“This bill makes significant reforms to the program, providing an enhanced affordability study to inform the decisions of our elected leaders and empowering communities and homeowners to challenge flood maps without adding a dollar to the deficit,” Byrne said. “This flood insurance proposal provides relief to coastal Alabama residents from skyrocketing policies while bringing the NFIP back to fiscal solvency.”
The bill aims to address some of the unforeseen consequences of the Biggert-Waters Flood Insurance Reform Act of 2012.
However, opponents of the legislation claim it disables attempts to fix the broken NFIP, which is nearly $25 billion in debt following massive payouts during hurricanes Katrina and Sandy.
“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,” said Alabama Sen. Richard Shelby addressing the U.S. Senate. “The program is bankrupt and only operating by the grace of the American taxpayer.”
According to the Federal Emergency Management Agency (FEMA), there were 58,383 NFIP polices in Alabama as of 2013.
Biggert-Waters 2012 required homebuyers to pay the “full-risk” rate for properties built before a community joined the NFIP and adopted its first Flood Insurance Rate Map (FIRM).
Under the old policy, pre-FIRM property owners were subject to a 25 percent annual rate increase until premiums reached their “full-risk” level.
HFIAA reduces those and prevents FEMA from raising rates on individual polices above 18 percent for nearly all properties.
However, these caps are only available for non-primary residences that are not prone to frequent or extreme flood damage, which means rates for second homes or properties with a history of flooding could still see rate increases of up to 25 percent.
The new bill also reinstated “grandfathering, which ensures that all post-FIRM properties built to code at the time of construction will have protection from rate increases triggered by map changes.
Under Biggert-Waters, those properties would have been required to be elevated out of a flood zone or phase in to “full-risk” rates over a five-year period.
To offset the costs in the bill and help fund the NFIP in the future, the bill also includes an annual surcharge for all policyholders to the tune of $25 for primary residence properties and $250 for non-residential and non-primary residential properties.
Other important changes in the bill:
• Homebuyers are no longer required to pay full-risk rate for pre-FIRM properties at the time of purchase.
• Homeowners are no longer required to pay the full-risk rate when purchasing a new policy voluntarily.
• Authorizes FEMA to reimburse policyholders for overpaid premiums.
• Requires FEMA to minimize the number of polices with annual premiums that exceed one percent of total coverage.
• Requires FEMA to prepare a draft affordability framework to address issues of affordability of flood insurance sold under the NFIP.
• Requires FEMA to provide for monthly or other more frequent premium payment installment options.
• Allows Communities to be reimbursed for successful challenges to FEMA maps using NFIP funds.