Last week, President Obama signed into law hard-fought legislation that will limit flood insurance premium increases. The president’s signature culminates a nearly two-year effort to combat large premium increases for millions of flood insurance policyholders. The increases resulted from a 2012 law intended to make the program solvent. But some of the increases were dramatic — double, even 10 times current premiums — threatening to make the program unaffordable to some middle-class homeowners. The Homeowner Flood Insurance Affordability Act limits yearly premium increases to an average of 15 percent per year for each of the nine property categories listed by FEMA, and stipulates that no individual policyholder pay an increase of more than 18 percent per year.
It calls on FEMA to “strive” to reach the goal that most policyholders have a premium of no more than 1 percent of the value of their coverage — in other words, $2,000 for a $200,000 policy. The bill also reinstates the flood insurance program’s grandfathering provision, meaning homes that complied with previous flood maps would not be hit with large increases when new maps show greater risk of flooding. It also ends a provision that required an immediate hike to actuarial levels when a home changes ownership — slowing home sales in many communities designated high risk by FEMA flood maps.
And it requires the Federal Emergency Management Agency, as it completes new flood maps, to obtain input from local communities and account for non-federal levees and other locally funded flood protection. It also requires FEMA to complete a study on how to keep the program affordable as it moves to make the program more solvent. The retention of subsidized rates in the House bill is funded by a $25 surcharge for most homeowner policyholders, and a $250 fee for non-residential property or non-primary residence homeowners. Still, the bill retains a provision in Biggert-Waters to eventually make the program self-sufficient by moving toward actuarial rates.
FEMA Administrator Craig Fugate told House members Tuesday that his agency doesn’t yet have a timeline to implement the new flood insurance law that averts major increases in premiums resulting from a 2012 law. Fugate said a top priority for FEMA is working out refunds for people who purchased homes in high flood risk communities after Biggert-Waters became law in July 2012. They were subject to immediate increases to actuarial levels, and some were huge: double, triple, even 10 times previous rates. Under the new law, these increases are required to be refunded. Fugate said he doesn’t yet know how long it will take to implement the refunds. FEMA is also working on one question not spelled out in the newly signed Flood Insurance Homeowner Affordability Act. It’s clear the higher premiums must be refunded, but not specified whether the higher insurance agent commissions paid out as a result of those increased premiums (agents are paid a percentage of the total premiums) should also be refunded, Fugate said.