HR 3370 Homeowner Flood Insurance Affordability Act of 2014 – Annual Rate Increases

Here is the beginning of a summary I am trying to pull together on HR 3370 Homeowner Flood Insurance Affordability Act of 2014. It passed the Senate last night and from indications on Twitter from Senator Landrieu of Louisiana, it is expected to be signed by the President fairly quickly. My summary comes directly from trying to review the bill (Homeowner Flood Insurance Affordability Act of 2014) supplemented by reading summaries from other resources. I will try to break out my posts into section by section discussions.

Rate Increases

There is a simple answer, sort of, to how this bill addresses rate increases. Basically, no insurance rate premium for a FEMA defined primary residence shall be increased by more than 18% unless it is due to a change in the town’s Community Rating Score, the property was misrated, or the insured makes a change to their insurance to increase the premium or decrease the deductible. On average, across the range of all homes in a particular rate classification, the insurance rate payment increase on an average basis should not exceed 15%. The previous average cap was 20%.

From my best read of this, these rate increases appear to begin with the homeowner’s next policy renewal period.

An interesting part of this, is that between this change and the one in the rate increase repeal (the one that phased in full actuarial costs over 5 years) there was a distinct disconnect. The 5 year phase in requirement to full actuarial costs would have exceeded the 20% increase cap that previously existed, unless there were parts of the properties in the classification scheme that saw no rate increases to offset the increases that may have doubled the amount a homeowner was paying.

The biggest part of the equation in this section is the 18% maximum increase. While it is nice to know that the average increase will be 15%, the maximum increase restriction will ensure that some do not see exorbitant increases.

It should be noted that there are exceptions to this limitation. If the property meets one of the following tests, the increases would be allowed to be up to 25% per year:

(A) any residential property which is not the primary residence of an individual;

(B) any severe repetitive loss property;

(C) any property that has incurred flood-related damage in which the cumulative amounts of payments under this chapter equaled or exceeded the fair market value of such property;

(D) any business property; or

(E) any property which on or after July 6, 2012, has experienced or sustained-

(i) substantial damage exceeding 50 percent of the fair market value of such property; or

(ii) substantial improvement exceeding 30 percent of the fair market value of such property.

 

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