HR 3370 Homeowner Flood Insurance Affordability Act of 2014
Changes are just for primary residences.
BIGGERT-WATERS RATE INCREASE REPEAL: Action:
- Repeals the rate increases that took effect after July 2012 including phasing in full actuarial costs for some properties over a 5 year time period;
- Repeals immediate increase to full cost on property transfer
- Provides for refunds for overpayments for some pre-FIRM properties written new on or after July 6, 2012.
- Provides for 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.
- Provides Preferred Rate Policy costs to some homeowners whose policies lapsed.
GRANDFATHERING FOR PRE-FIRM PROPERTIES: HR 3370 restores the grandfather rate protection for at least two years of policy coverage.
FUTURE RATE INCREASES: 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%.
Exceptions, 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.”
In the past, we have been advised that, to get a Preferred Risk Policy, the FLOOD INSURANCE BE ACQUIRED BEFORE THE MAPS BECOME EFFECTIVE, which is July 16, 2014. While this may not be necessary under the provisions of HR 3370, it is strongly encouraged.
A Preferred Risk Policy costs, based upon the FEMA website, $460 for $250,000 of coverage. A Standard Risk Policy might start at over $1000 for the same coverage.
MAXIMUM PREMIUMS PAYMENTS: Congress has advised the Administrator of FEMA to minimize the number of policies that have an annual premium in excess of 1% of the redemption value of the insurance. Thus, for the $250,000 maximum structural coverage I mentioned in the previous post, the target is for annual premiums to not exceed $2,500.
SURCHARGE: To minimize the Federal budget impacts of this delay in full implementation of full risk based insurance premiums every policy will be issued a surcharge, $25 for primary residence policies and $250 for commercial and second home policies.
PAYMENT OPTIONS: Rather than an annual lump sum Flood Insurance Bill Section 11 of HR 3370 allows for either annual or monthly billing.
INCREASED DEDUCTIBLES: The available deductible, the amount you pay for damages before the insurance would kick in can be increased to $10,000 from the present the maximum deductible of $5,000.
DETACHED STRUCTURES: Detached structures will no longer be required to be insured unless the mortgage lender felt it needed to protect the value of the mortgage on the property.
FLOOD MITIGATION EFFORTS: Incentives of lower flood insurance rates are offered to homeowners who took steps to protect their homes against flood risks.
ESCROW ACCOUNTS: Along with the provisions for flood insurance to be billed on a monthly basis, banks may also offer escrow capabilities for flood insurance payments similar to what is provided for real estate taxes and required homeowners insurance.
Dennis Planning Staff Editorial Notes:
- FEMA will need to implement these changes, how long it takes to start to experience the benefits of these changes is unknown.
- The Act does not permanently delay flood insurance rate increases.
- The Act provides little benefit to second home owners or commercial properties.
- The National Flood Insurance Program needs to be reauthorized again in 2017, there will be pressure by some entities to return to Biggert-Waters standards for federal deficit reduction.
- Homeowners should take all efforts necessary to protect their property from flooding, now, during this rate shock respite.
Prepared by the Dennis Planning Department