Congress Passes Homeowner Flood Insurance Affordability Act

Congress Passes - Homeowner Flood Insurance Affordability Act

By: Jim Cantwell,  Massachusetts State Representative
Mar 7, 2014

Many thanks to Congressmen Bill Keating, Stephen Lynch, and the entire Massachusetts delegation for their work leading to an overwhelming approval vote on Tuesday, March 4 on the Homeowner Flood Insurance Affordability Act.

I am proud to hear others around the country praise our Massachusetts representatives for their work on this issue. In fact Congressman Keating was singled out for doing great work on the bill during our weekly national conference call last Friday that included three Congressmen on the line (Republicans Bill Cassidy and Steve Scalise, and Democrat Cedric Richmond) and with leaders of our grassroots National Flood Insurance Coalition (which has grown to over 200 organizations working on this issue nationally!)

Some quick bullet points about the bill from our National Flood Insurance Coalition conference call:

1) It reinstates grandfathering meaning that homeowners, businesses, and town entities that constructed buildings to code will have protection from rate spikes due to new mapping – for example, since Haddad's built its new building to code, actually exceeding what was required by FEMA at the time in building above flood elevation 11, they cannot now be penalized for a new FEMA map that claims the flood elevation should be 16 feet. What is also important is the grandfathering stays with the property, not the policy, which will help our real estate industry.

2) Caps Annual Rate Increases at 15 percent. This bill decreases FEMA’s authority to raise premiums. As many folks in Marshfield and Scituate know we had homeowners whose flood insurance was increasing in excess of 1000 percent, with some folks receiving bills that increased from $3,900 a year to $68,000 a year to provide $250,000 in coverage. The bill prevents FEMA from increasing premiums within a single property class beyond a 15 percent average a year, with an individual cap of 18 percent a year.

3) The updated legislation also states that FEMA shall strive to minimize the number of policies with premium increases that exceed one percent of the total coverage of the policy (for example if your home is worth $350,000 your flood insurance should not exceed $3,500). Note that this is language that was insisted be added by Democrats in the US Senate but does not automatically bind FEMA on repetitive loss properties.

4) The bill eliminates the so-called “sales trigger.” This is a HUGE help to real estate as the new purchaser is treated the same as the current property owner, and will not see a dramatic and unknown increase in premiums post sale.

5) To keep the program solvent the law allows modest annual surcharges. This legislation applies an annual surcharge of $25 for primary residences and $250 for second homes and businesses, until subsidized policies reach full risk rates. All revenue from these assessments would be placed in the NFIP reserve fund, which was established to ensure funds are available for meeting the expected future obligations of the NFIP.

                                       
6) The legislation funds the Affordability Study and mandates completion.  This legislation funds the affordability study required by Biggert-Waters and mandates its completion in two years. We need this to be complete to help us in future battles to keep rates affordable as the potential of yearly increases needs to be finite.

7) To assist the homebuilder and home repair segment of the economy the legislation includes the so-called “Home Improvement Threshold.” This bill returns the “substantial improvement threshold” (i.e. renovations and remodeling) to the historic 50 percent of a structure’s fair market value level. Under Biggert-Waters, premium increases are triggered when the renovation investments meet 30 percent of the home’s value.

8) The legislation refunds policyholders who purchased pre-FIRM homes (those built before flood insurance regulations took effect) after Biggert-Waters was passed (July 6, 2012) and were subsequently charged higher rates. We have had dozens of folks in this category.

9) The legislation reimburses homeowners who successfully appeal maps. I am checking to see if Marshfield and Scituate can be reimbursed for the town appeals.

10) The Additional policies Included: This legislation includes several other provisions allowing for payments to be made in monthly installments and also requires a 5 percent minimum annual increase primary residence policies that are not at full risk.

I've had a number of calls over the weekend from folks around the country who share our concern about the affordability – and stability – of the National Flood Insurance Program.  

The general consensus is that the bill is not perfect and that there will be some more work to do in the future (to reduce the administrative costs for the program, to ensure that so-called actuarial rates are justified and not excessive, and to make sure premiums remain in a dedicated fund and are not used for other disasters, among other suggestions), but this is very good legislation.  

At a time when Washington has shown a sad lack of bi-partisan cooperation we should be proud of our US Congressmen and Senators in Massachusetts who have been working very hard on this issue.

This is a positive example of how regular folks – and our two little towns of Scituate and Marshfield – can make a major difference in federal policy!

Jim Cantwell is a Marshfield resident and represents the Fourth Plymouth District, which includes Marshfield and most of Scituate, as state representative.