HR 3370 Homeowner Flood Insurance Affordability Act of 2014 – Grandfathering

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.

Grandfathering

Biggert-Waters added a section to the NFIP program that required all properties located in a flood zone to start to see their insurance rates phase in to full risk value as policies renewed after July 2012. New rates would phase in over a 5 year period (20% per year). There was a lot of angst over this provision. First was simply the lack of knowing for many properties what the full risk costs would be. This took on a very black box persona as no one, including most insurers, knew what the full risk costs would be. many are familiar with the horror stories that came out to the media. There was also a misunderstanding as to how the phase in would work. Many thought the 20%, and I heard this at workshops, was based upon existing premium payment. As worded in the section that is deleted by yesterday’s action, the phase in was over 5 years and meant that each year for 5 years the homeowner would pay a rate that was equal to 20% of what it would take to get to full risk value. Thus a homeowner paying $400 per year, needing to get to $3,600 per year was facing an addition $640 in new payments each year until they got to full risk.

HR 3370 eliminates the paragraph altogether, and removes the grandfather rate elimination in Biggert-Waters.  This does not mean that there will be no rate increases, nor does it mean that grandfathering will remain in perpetuity. What it does provide is a little bit of breathing room, and perhaps a more controlled level of premium increases as discussed in the allowed rate increases portion of the legislation, to be discussed next.

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