Menendez flood bill moves forward; policyholders will see relief
A few months ago, WGA reported on President Obama’s approval of the Homeowner Flood Insurance Affordability Act of 2014, which sought to scale back major flood insurance premium increases brought on by the Biggert-Waters Reform Act of 2012. Biggert-Water’s called for re-mapping of flood zones, moving scores of homeowners into new, high-risk flood areas and allowed the NFIP to raise premium’s to an actuarial sound basis for risks in the 100 year flood plan. In addition, the reform repealed the property sales trigger, which prevented new homeowners from keeping the very low pre-FIRM rates on new purchases. FEMA defines “Pre-Firm” (Pre- Flood Insurance Rate Map (FIRM)) buildings as “those built before the effective date of the first Flood Insurance Rate Map (FIRM) for a community. This means they were built before detailed flood hazard data and flood elevations were provided to the community and usually before the community enacted comprehensive regulations on floodplain regulation.” These subsidized rates are a way to offer flood insurance coverage to property owners whose homes were built before flood protection was readily available.
Now, as FEMA and the NFIP work to implement the changes brought on by the law, (also known as the Menendez/Grimm bill), property owners living in affected areas should take note of some of the major elements that will be addressed, including:
- Keeping rates below a 15% increase for a class of properties and below an 18% increase on individual polices each year.
- Repealing Biggert-Water’s provisions that would have required policy holders to pay the full-risk rate for Pre-FIRM* properties when making a new purchase.
- Effective May 1, 2014, the Menendez/Bill dictates that instead of jumping to “full cost” for flood insurance, buyers will assume the seller’s October 2013 rate for a pre-FIRM property.
- Repealing Biggert-Water’s requirement that Pre-FIRM property owners pay the full-risk rate if they purchase a new policy
- Changing provisions of Biggert-Water’s that terminated the use of grandfathering premium rates
- Refunds issued for excess premiums charged to policyholders whose rates changed based on Biggert-Waters’ subsidy elimination. However, refunds are subject to specific conditions, including the time-period in which a policy was purchased and the total cost increase.
Despite moving forward with the changes, FEMA and the NFIP estimate that it will take at least a year before the law is fully implemented and refunds are issued. WGA will continue to follow legislative progress on this topic and keep our readers up to date.
About the Author
Bruce MacDougall is a Senior Vice President in the Property & Casualty group at WGA and leader of the Private Client Group. His responsibilities at WGA include developing relationships and serving as a resource for WGA clients in all areas of property and casualty insurance brokerage and risk management consulting.