HR 3370 Homeowner Flood Insurance Affordability Act of 2014 – Rate Increase Repeal

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 increase repeal:

Section 3 deals with repealing increases in rates that have occurred over the past 18 plus months. It repeals a requirement that any policy bought after July 2012 be for “full actuarial risk” and removes a requirement that properties sold would be immediately subject to full actuarial risk.

  • This is important why? Dennis has about 4,000 properties being added to the flood zone as part of the pending map changes. Prior to July 2012 a home constructed before the Flood Insurance Rate Maps went into effect was allowed to by flood insurance at a discounted rate as the home met the standards that were in place at the time of construction. Under Biggert-Waters this provision was removed. The action that took place over the past month has restored this provision. Also, properties located within the flood zones established in 1986 and 1992 in Dennis had, before Biggert-Waters, been able to transfer their discounted flood insurance to new purchasers. This transferability of flood insurance policies protected property values and provided an incentive for homeowners to maintain flood insurance after all mortgages had been paid off. When this ended in July 2012, home buyers were finding they faced hefty insurance rate increases that made homes they were about to close on unaffordable.

Another part of the rate increase repeal is a bit more curious, it removes a provision that established paying full risk value for a new policy if a homeowner allowed coverage to lapse and replaces it with a provision that protects the discounted rate for a future purchase of of flood insurance by placing a caveat that the full risk value is not required if the dropping of the coverage was as a result of the insurance no longer being required. I am not sure where this takes us and have not seen much discussion of this provision. It appears to allow for a homeowner to drop flood insurance when a mortgage is paid off (as that is the trigger to require insurance) and pick up the discounted rate again at a future date. I am not sure if this is the intent, but we will have to wait for guidance.

The rate increase repeal also provides for refunds for over-payments based upon repealing increases that have occurred. It would appear that this refund issue will affect a very small cross-section of people, mainly those who have purchased flood zone property since July 2012 and had the new full risk premiums assessed rather than previously existing grandfather rates. Some seasonal homes may have seen a start to the phasing in of full-risk premiums, but, from the best I can determine, this is a very small number here in Dennis. For the seasonal homes, there is an issue still unresolved relative to the refunds for over-payments as Senator Lee of Utah has introduced legislation, adopted by the Senate, that would prohibit any refunds for over-payments on second homes or vacation homes. We will have to see how this plays out.

Finally, under the rate increase repeal there is a provision for the transfer of subsidized insurance policies at the time a home is sold if insurance is in effect on the home being sold prior to the sale.

So, basically, the Rate Increase Repeal section provides some relief, albeit possibly only temporary for some, of the drastic rate increases that were part of the Biggert-Waters Act. As I work my way through grandfathering and the sections on rate increases in the next few posts, perhaps all of this will become more clear.

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2 thoughts on “HR 3370 Homeowner Flood Insurance Affordability Act of 2014 – Rate Increase Repeal

  1. Tom Morton

    Do you have any thoughts as to what relief the bill provides for policies that lapsed for reasons other than “no longer required”? My property was grandfathered in, but my policy lapsed in March of 2012, but was subsequently reinstated with a waiting period (30 days, I believe). My read of the bill leads me to believe that policies that lapsed after July 2012 will have higher rates, so I think my property should fall back under the grandfathered rates. Does this sound correct?

  2. Daniel Fortier Post author

    That “no longer required” is a curious issue. You are “required” to have flood insurance if you have a federally backed mortgage. Thus taking a strict interpretation, if your insurance lapsed because you paid off your flood insurance, technically, it was “no longer required.” Somehow I do not believe that they will take this approach. In the past it has been a once insured, always insured approach. If you let it lapse at any point after being placed into a designated flood zone, you lost your grandfather protections. Your best bet is to talk to an insurance agency after the President signs this into law later this week. At best, the most favorable interpretation could get you the reduced rate protected for a year and subject you to the phase in of higher rates at the 15%-18% annual increases.

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