March 21, 2014
RE:
Information on the “Homeowner Flood Insurance Affordability Act”
President Obama signed into law H.R. 3370, the Homeowner Flood Insurance Affordability Act of 2014.
This law was passed after only a few months of debate and consideration in Congress, which represents
a remarkably fast revision by Congress of the more onerous pricing provisions in the Biggert-Waters
Flood Insurance Reform Act of 2012 (Biggert-Waters). Enactment of the Homeowner Flood Insurance
Affordability Act marks a tremendous victory for IIABA. In September 2013 IIABA Government Affairs staff
was given clear direction from volunteer leaders to advocate for a comprehensive and reasonable
solution to the two most problematic provisions of Biggert-Waters (Sec. 205’s “bought/sold” provision and
Sec. 207 “grandfathering”).
The Homeowner Flood Insurance Affordability Act of 2014 was sponsored in the House by Reps. Michael
Grimm (R-NY) and Maxine Waters (D-CA) and in the Senate by Sens. Bob Menendez (D-NJ) and Jonny
Isakson (R-GA). The legislation, amongst other things, repeals both Sec. 205’s “bought/sold” provision
and the entirety of Sec. 207, which will help to provide relief from the “sticker-shock” associated with
Biggert-Waters. The Big “I” was at the forefront of these deliberations at every stage throughout the
process and was the only major producer trade association to advocate for this legislation. The House of
Representatives passed H.R. 3370 on March 4, 2014 by a vote of 306 - 91. The legislation was taken up
quickly by the Senate and passed, without any changes, on March 13, 2014 by a vote of 72 - 22.
Impact of “Homeowner Flood Insurance Affordability Act” on Agents
Important Information: FEMA has not yet issued any guidance on H.R. 3370 and none of the provisions
will be implemented until such guidance is released. Big “I” staff have been in contact with FEMA, and
they have indicated they will implement the new law as quickly as possible. The Big “I” plans to share
more implementation details as they
become available. We also plan to host webinars on the impact of the law on agents and their customers,
and will host a special briefing on the new law immediately following the “Issues Briefing” at the 2014
Legislative Conference.
OF CRITICAL NOTE: Pending further guidance from FEMA, the Big “I” strongly encourages agents and
brokers to continue with any and all renewals before there is a lapse in coverage and to NOT wait on
implementation of this new law before proceeding with renewals. Failure to renew a subsidized policy and
to pay the full premium will result in a lapse of the policy, which under the new law continues to be a
trigger for a total and permanent loss of the subsidy. While we understand some renewal premiums
(those that have seen their subsidy removed already due to one of the triggers found in Biggert-Waters
described below) could be substantial, the new law will allow for a refund of such premiums. In nearly
every case it will be far better to “overpay” a premium today in order to keep a policyholder’s subsidized
rate and then later get a refund than to let the policy lapse and lose the policyholder’s subsidy FOREVER.
While further information will be forthcoming as implementation proceeds, the below represents the
provisions that will likely have the most profound impact on agents and brokers:
Repeal of Certain Triggers for Loss of Subsidy
In addition to other pricing provisions which remain intact, Biggert-Waters’ Section 205 immediately (with
no phase-in) removed all subsidies for pre-FIRM properties for: any new policy purchased on or after
7/6/12, any NFIP subsidized policy that lapsed for any reason, or any policy for a property bought/sold
(real estate transaction).
The new law repeals rate increases caused by three “triggers”:
1. All properties sold after July 6, 2012 (the implementation date of this bought/sold provision of BiggertWaters). New homeowners and business owners will continue to receive the same treatment as the
previous owner.
2. All properties that purchased a new policy after July 6, 2012.
3. All properties that had a lapsed policy, provided that the lapse was a result of the property no longer
being subject to the mandatory purchase requirement.
Again, while we are still awaiting guidance from FEMA, it is important for agents to know that under the
new law a pre-FIRM property WILL lose their subsidy immediately if the property allows their policy to
lapse (for any reason or any length of time) and the property is still covered by the mandatory purchase
requirement.
Finally, it is important to note that the repeal of these immediate triggers applies to all policyholders,
including second homes and commercial properties. However, these second homes and commercial
properties will continue to have their subsidies phased out at a rate of 25% per year over the previous
year’s premium until actuarial rates are realized pursuant to the remaining provisions of Section 205 of
Biggert-Waters.
Refunds Issued to Policyholders
Policyholders (residential and commercial) who immediately lost their subsidized rate under BiggertWaters, bought such policy, and now qualify for the subsidized rate per the repeal of certain triggers will
receive a refund. FEMA is in charge of disbursing this refund, and it will likely take at least a year (if not
longer) before all of these refunds are issued. The timing and process of the issuance and delivery of
these refunds is certain to be top-of-mind for many independent agents and their clients. As this is
implemented, we will be sure to pass along important details.
Grandfathered Policies
By way of background, when flood maps change, some policyholders would see an increase in premium
due to a zone change and/or the base flood elevation (BFE) changing. Grandfathering allowed the “old”
zone and/or BFE to still be used if continuous NFIP coverage was maintained (throughout all ownerships)
prior to the map change. Grandfathering can result in very significant savings to policyholders.
Section 207 of Biggert-Waters eliminated grandfathering when a community adopted a new flood map.
When a new map was adopted the new rates would be phased in 20 percent per year over a five year
period until the full rate was reached. Section 207 of Biggert-Waters was not planned for implementation
until 10/1/14.
The Homeowner Flood Insurance Affordability Act completely repeals Section 207 of Biggert-Waters, thus
totally restoring grandfathering.
Annual Rate Increases
Prior to Biggert-Waters, the maximum annual increase for NFIP policies that are re-rated was 10 percent.
Biggert-Waters changed that maximum amount to 20 percent. The new law states that for any property
class the maximum is 15 percent, while any one specific policy can only see a maximum annual increase
of 18 percent. Most properties are rated by class and will be subject to the 15 percent limit.
Additionally, the bill also requires a 5 percent minimum annual increase on pre-FIRM primary residence
policies that are not at full risk. This annual increase will be applied until the property is at actuarial rates.
Finally, there is “guidance” in the law stating that FEMA must. “…strive to minimize the number of policies
with annual premiums that exceed one percent of the total coverage provided by the policy.” For example,
a house insured for $200,000 should not have a premium over $2,000. However, this language is NOT a
requirement; FEMA must only “strive” to do this.
Annual Premium Surcharges
An annual surcharge of $25 will be applied to all primary residential policies and $250 will be applied to all
non-residential policies and non-primary residential policies. The funds will be deposited in the NFIP
reserve account created by Biggert-Waters to build a cushion for future catastrophic losses.
Installment Payments for Premiums
The new law will allow monthly installment payments for premiums at the option of the consumer.
Deductibles
Under Biggert-Waters, pre-FIRM deductibles for risks with building coverage of more than $100,000 were
to increase from $1,500 to $2,000. For similar post-FIRM risks, the deductibles were to increase from
$1,000 to $1,250. These changes remain, but the new law also creates an optional deductible of $10,000
for residential properties. If chosen a disclosure indicating that the policyholder is responsible for the outof-pocket losses must be included with the policy.
Home Improvement Fairness
Biggert-Waters phased-out subsidies for pre-FIRM properties that were “substantially improved”. While
historically the threshold to cross “substantially improved” was 50 percent of Fair Market Value (FMV),
Biggert-Waters changed this to 30 percent FMV. The new law changes the threshold back to 50 percent
FMV.
Reimbursement for Map Appeals
The new law allows FEMA to utilize the National Flood Insurance Fund to reimburse policyholders who
successfully appeal a map determination. Biggert-Waters provided FEMA the authority to reimburse
homeowners for successful appeals of map findings, but Congress has never appropriated funding for
this purpose.
Flood Insurance Advocate
The law establishes a Flood Insurance Advocate within FEMA to answer current and prospective
policyholder questions about the flood mapping process and flood insurance rates. The Flood Insurance
Advocate will be responsible for assisting property owners through the map appeals process, and
improve outreach and coordination with local officials, community leaders, and Congress.