Congress to NFIP: keep flood premiums in check
Earlier this month Congress passed legislation scaling back major hikes in flood insurance premiums sending the bill to the White House where it is expected to be signed into law by President Obama in the coming weeks. The bill effectively halts many of the changes outlined in the Flood Insurance Reform Act of 2012, which was passed with the goal of making NFIP financially solvent; at the time, the program was $30 billion in debt from claims from Hurricane Sandy and other major storms.
The 2012 changes, frequently referred to as The Biggert-Waters Flood Insurance Reform Act, included provisions requiring the NFIP to raise premium’s to an actuarial sound basis for flood risks. Biggert-Water’s also called for re-mapping of flood zones, moved hundreds of thousands of homeowners into new, high-risk flood areas, thus eliminating subsidized premium rates they had previously benefitted from. In addition, the reform repealed the property sales trigger, which prevented new homeowners from keeping the very low pre-FIRM rates on new purchases.
The new bill, referred to as the Menendez/Grimm Bill, preserves the below-market rates for homeowners whose properties were built to code but who had been moved to high-risk areas during the 2012 re-mapping. According to Menendez and other sponsors of the bill, an increase in premium rates would have threatened recovery efforts from Superstorm Sandy and further compromised the financial security of homeowners affected by the storm. In order to combat these threats, the new law caps premium rate increases at 18 percent per year. However, the Menendez/Grimm bill has eroded many of the financial gains the prior reform had provided. Critics blame Washington lawmakers for caving in to public pressure and say that the reversal threatens the financial stability of the NFIP. The legislation could backfire, costing Congress and taxpayers hundreds of millions of dollars in the event of a future catastrophic storm like Hurricane Katrina or Sandy in the United States.
Please stay tuned as WGA will continue to post updates as this conversation continues through its various political and actuarial iterations
About the Author
Bruce MacDougall is a Senior Vice President in the Property & Casualty Practice at WGA and leader of the firm’s Private Client Group. His responsibilities include developing relationships and serving as a resource for WGA clients in all areas of property and casualty insurance brokerage and risk management consulting.