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To reform or not: Homeowner Flood Insurance Affordability Act reverses reforms

Flooded homes in Debary, Fla., 2008
Flooded homes in Debary, Fla., 2008
George Armstrong--FEMA

March is known as the beginning of severe spring weather. This March has been a bit unusual due to the reluctance of winter to make its exit. However, regularly scheduled public information campaigns about severe spring weather continued on. National Severe Weather Preparedness Week was March 2-8. National Flood Safety Awareness Week was March 16-22. And on March 24, President Barak Obama signed into law the Homeowner Flood Insurance Affordability Act of 2014, which essentially reverses the strongest reforms to the National Flood Insurance Program (NFIP) as laid out in the Biggert-Waters Flood Insurance Reform Act of 2012.

Since 1968, the National Flood Insurance Program has been offering flood insurance to homeowners who otherwise would be left unprotected since most homeowner’s insurance policies do not cover flooding.

Flood insurance was made accessible and affordable. And if you live in a community that participates in the Community Rating System, you have the potential to enjoy discounts of up to 45% off of those already inexpensive rates, depending on the extent to which your community goes above and beyond the minimum requirements in mitigating against flood-hazards in your area.

The program was successful, but not without its problems. Some people felt the low cost of the premiums worked as an incentive to continue to build in the floodplain; a practice which only exacerbated the problem. Many people whose homes flooded repeatedly simply used their insurance payouts to rebuild again and again in the same hazardous area. And as floodplains continue to be developed, there are fewer and fewer places for stormwaters to go except up.

Additionally, FEMA had not been effectively monitoring its coverage requirements; although flood insurance is required on homes in the special flood hazard zones if they have a federally backed mortgage, it is not uncommon for homeowners to let their policies lapse. Enforcement was weak and spotty.

As a result, we have more floods, and more people turning in claims on the same properties over and over, as well as people without insurance who need help when their homes are destroyed or damaged by floods. It was a disaster waiting to happen.

In 2005, Hurricane Katrina broke the bank, and that left FEMA with a big problem. “We are $24 billion in debt,” Craig Fugate, Director of the Federal Emergency Management Agency, recently informed the House Financial Services Committee in Washington, D.C.

Biggert-Waters was a rare piece of legislation that had bipartisan support as legislators uncharacteristically took a big-picture view of the long-term, realizing that as natural disasters become more frequent and more costly, it is important to make the tough, hard calls now.

Biggert-Waters had a mission. To save the National Flood Insurance Program; make it solvent, make it more effective. And that meant making some people very unhappy. Some of its requisites included no longer grandfathering into the program homes that were built pre-NFIP; Repetitive Loss Properties (homes that repeatedly flood and for which claims are repeatedly submitted) were denied coverage; and most importantly, rate increases to actuarial levels, phased in over five years. Some of those rate increases were enormous, anywhere between twice to ten times previous rates. Those who were in danger of being hit hardest were those grandfathered policyholders, those who built to code when they first moved into their homes, but were later considered at greater risk under the new Flood Insurance Rate Maps (FIRM), due to changes in topography and development.

Biggert-Waters provoked a strong negative reaction from the public, who made sure Congress heard their protests. Congress heard.

According to a story reported by NPR, even the bill’s co-sponsor, Maxine Waters, for whom the law is named, reversed herself and demanded a stop to the law she helped sponsor and pass. Surprisingly, she cast the blame on Fugate for not explaining how high the rate increases would go, even though they were laid out in the law she helped write, and bemoaned the financial harm the law would cause, calling it “just unconscionable.”

In a bad case of morning after regret, lawmakers drafted a new bill to reverse the strongest reforms of Biggert-Waters.

The Homeowner Flood Insurance Affordability Act of 2014 prohibits the implementation of Section 207 of the Biggert-Waters Flood Insurance Reform Act of 2012: reinstates the grandfathered category; it will require FEMA to create new rate sheets for hundreds of thousands of policyholders, and limits increases to an average of 15 percent for FEMA’s nine rating classifications under the Community Ratings System and no more than 18 percent for individual rates.

According to the FEMA Fact Sheet on the National Flood Insurance Program and the Consolidated Appropriations Act of 2014, the new law does not impact any other part of Biggert-Waters. “FEMA is still prohibited from offering subsidized rates to Pre-FIRM properties purchased after Biggert-Waters was enacted, properties not insured when Biggert-Waters was enacted, and properties that experienced a lapse in coverage. FEMA will continue to phase-out subsidized rates for Pre-FIRM non-primary residences, businesses, and properties with severe or repeated flooding.”

High premiums and consistently enforced policies can act as deterrents to purchasing or building within the floodplain, a very-much desired end result of NFIP policies. But the more affordable flood insurance is, and the lighter the consequences for building in the floodplain, the less likely people will be to remove themselves from harm’s way. And in the end, we all pay.

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