The summary is similar to what I wrote about earlier. Here are the specifics from the Insurance Journal:
Prevents Skyrocketing Rate Increases
- Creates a firewall on annual rate increases – Prevents FEMA from raising the average rates for a class of properties above 15% and from raising rates on individual policies above 18% per year for virtually all properties.
- Repeals the property sales trigger – Repeals the provision in Biggert-Waters that required homebuyers to pay the full-risk rate for pre-FIRM properties at the time of purchase. This provision caused property values to steeply decline and made many homes unsellable, hurting the real estate market. Under the Menendez/Grimm Bill, homebuyers will receive the same treatment as the home seller.
- Repeals the new policy sales trigger – Repeals the provision in Biggert-Waters that required pre-FIRM property owners to pay the full-risk rate if they voluntarily purchase a new policy. This provision disincentivizes property owners from making responsible decisions and could hurt program participation. The Menendez/Grimm Bill allows pre-FIRM property owners to voluntarily purchase a policy under pre-FIRM conditions.
- Reinstates grandfathering – Repeals the provision in Biggert-Waters that would have terminated grandfathering. If grandfathering was terminated, property owners mapped into higher risk would have to either elevate their structure or have higher rates phased in over 5 years. The Menendez/Grimm Bill allows grandfathering to continue and sets hard caps on how high premiums can increase annually.
- Refunds homeowners who overpaid – Requires FEMA to refund policyholders for overpaid premiums.
- Affordability goal – Requires FEMA to minimize the number of policies with annual premiums that exceed one percent of the total coverage provided by the policy.
FEMA Transparency and Outreach Requirements
Reimburse successful appeals – Allows FEMA to utilize the National Flood Insurance Fund to reimburse policyholders and communities that successfully appeal a map determination. FEMA currently has the authority to reimburse successful appeals of map findings, but Congress has never appropriated funding for this purpose. Making appeal reimbursement an eligible expense of the NFIF would give FEMA the incentive to “get it right the first time” and repay homeowners and communities for contributing to the body of flood risk knowledge, according to backers.
Flood insurance advocate – Establishes a Flood Insurance Advocate within FEMA to answer current and prospective policyholder questions about the flood mapping process and flood insurance rates. The advocate will be responsible for educating policyholders about their individual flood risks, their options in choosing a policy, assisting property owners through the map appeals process, and improve outreach and coordination with local officials, community leaders, and Congress.
Urban mitigation fairness – Requires FEMA to establish guidelines on alternative mitigation methods for urban structures where tradition mitigation efforts such as elevation are impractical, i.e. rowhouses in Hoboken. This section makes clear that such alternative forms of mitigation shall be taken into account in the calculation of risk premium rates.
Clear communication – Requires FEMA to clearly communicate full flood risk determinations to policyholders even if their premium rates are less than full risk. This helps to inform policyholders as to their true flood risk.
Fairness for small businesses, houses of worship, non-profits and low-income homes – Requires FEMA to report to Congress on the impacts of rate increases on small businesses, non-profit entities, houses of worship, and residences with a value equal to less than 25% of the area median home value. If FEMA determines there is an effect on affordability for these properties, it must provide recommendations to Congress within 3 months after making the determination.
Mapping accuracy – Requires FEMA to certify its mapping process is technologically advanced and to notify and justify to communities that the mapping model it plans to use to create the community’s new flood map are appropriate. Also requires FEMA to send communities being remapped the data being used in the mapping process.
Notification – Requires FEMA, at least 6 months prior to implementation of rate increases as a result of this Act to make publicly available the rate tables and underwriting guidelines that provide the basis for the change, providing consumers with greater transparency.
Breaking news. Analysis to follow:
If all goes as planned, legislation was filed Friday for a vote this Wednesday on changes to the Biggert-Waters Flood Insurance Reform Act. From what I have been able to draw from various news sources, two of which are linked at the end of this post, is the following:
- Flood insurance rates nationally will increase on average no greater than 15% per year until property owners reach the true actuarial risk associated with flooding. As this is a national average, there will be a maximum increase of 18% per year limit for any individual homeowner.
- The maximum annual insurance premium for any homeowner should not exceed 1% of the total premium value, again for most homeowners. What this means is, we can place a real number into the equation of what it will cost, a maximum insurance premium for structural insurance would be $2,500 on a $250,000 maximum policy. I am sure that there will be some form of deductible needed to accomplish this but it is a good start.
- Grandfathering is reinstated, the articles do not provide significant information on the nature of this reinstatement. Clearly, all reports out of Washington have stated grandfather rates will be protected for primary residence transfers. There is nothing yet to clarify whether non-primary residences will have any protection.
- There will be a “surcharge” placed on all policies to minimize the tax ramifications of these changes. Residential policies will see a $25 per year surcharge and non-residential policies will see a $250 per year surcharge. These surcharges are designed to soften the impact of the delayed revenue collections found in Biggert-Waters.
These changes should help provide some stability to the area housing market, at least the primary residence one. People know what to expect when buying a home and how much their insurance rates will climb each year until full actuarial rates are collected.
A few thoughts.
- I am not sure 1% of premium is “full-actuarial” cost of flood insurance for all properties. A property closer to the water, the so-called “repetitive loss” properties obviously are damaged more often than once every 100 years. These properties will continue to be subsidized, essentially through the costs for properties less likely to be damaged and through the surcharges on all other properties.
- Premium value does not necessarily reflect actual risk. FEMA allows for insurance of up to $250,000. In MA there is legislation pending to restrict insurance premiums to no more than what someone owes to a bank on their mortgage, up to the $250,000 maximum. Of course, this means someone could be insured for this amount and find, just as easily, their true actuarial risk runs only $30,000 (1% premium being $300 rather than $2,500). Hopefully a balance will come.
- The “surcharge” will result in those who are paying full actuarial risk, or over such costs, to pay for those who are still below the full actuarial risk.
The Dennis Economic Development Committee met on Thursday February 27th to begin its review of the Draft Sesuit Harbor Zoning Proposal. We made it about half way through the proposal. The edited document is posted under the tab Sesuit Harbor Zoning Draft 2-27-2014 EDC Revisions. The portion of the by-law they made it through is highlighted in blue. This will allow you to recognize what portion of the by-law they have finished a first cut review of.
The EDC will meet next on March 20th at 9 am here in the Town Hall Annex Conference Room to continue our discussion.