Flood Insurance – Whats Coming?
Dear Neighbors, Clients, Friends and Fellow Realtors…
It is a monumental task to find long term solutions to address the sustainability and continuity of the National Flood Insurance Program (NFIP), and still balance the affordability needs of consumers. The issues involving the upcoming makeover of the NFIP are critically important for our coastal communities, including 22,000 communities that depend on it. It is important Congress get this right.
NFIP has been a law for almost 50 years, but has gone through several transitions, most recently in 2014: the Homeowner Flood Insurance Affordability Act. That Act reinstated grandfathering of lower rates, and also changed the process for subsidizing premiums.
NFIP needs the reforms to be reauthorized by September 30 this year. Following is discussion of the seven bills. The reforms submitted and relative issues contained in these bills affect me as a Realtor and property owner, and I have organized my Summer Newsletter to outline the proposed bills and provide a source of information for fellow real estate professionals and property owners.
Address individual concerns to your insurance agent, I am no expert in this field. But I will convey resource information as concisely as I can. I am drawing directly from the summary article published by Inman News on June 30, by Amber Taufen, staff writer, Inman.com/2017/06/30: “NAR Supports Six of Seven Bills Proposed to Re-authorize, Reform National Flood Insurance Program.”
In her article, Ms. Taufen publishes and summarizes a letter from William E. Brown, 2017 President, National Association of Realtors, to Honorable Jeb Hensarling, Chairman, House Financial Services Committee, and Honorable Maxine Waters, Ranking Member, House Financial Services Committee, Washington, D.C.
Following this summation I am directly forwarding the information and resources provided me by Doug Izzo, who is in charge of Legislative Affairs for the Tampa Bay Beaches Chamber of Commerce. Both organizations, NAR and TBBCC, appear closely aligned in their areas of support and/or concern.
The INMAN summary article reports the new legislation would exempt commercial property owners from purchasing flood insurance for properties in “Special Flood Hazard Areas.” The bill that NAR opposes would eliminate “all future grandfathering for existing homeowners who have followed the law, built to code and invested tens of thousands of dollars to reduce their risk, as well as NFIP’s exposure.” NAR further says the flood mapping reforms “don’t go far enough. FEMA must obtain the elevation data necessary to calculate and disclose full risk rates for all homes in the NFIP by transitioning to building specific flood maps like North Carolina’s….It should not be incumbent on homeowners to spend hundreds of dollars to provide information that a federal program funded by their tax dollars should be collecting in the first place.” (NAR President William E. Brown). “NAR is very concerned about the cumulative impact of the bill’s new surcharges and fee increases on the total cost of flood insurance; additional analysis is needed to evaluate the cumulative impact of the collective changes for a range of policyholders….legislation that strikes a balance between the long-term sustainability and affordability of the NFIP.” Concluding the NAR recommendations, NAR President Brown assures Congress the NAR looks forward to working with legislators to “strengthen and improve the 21st Century Flood Reform Act as it works its way through the legislative process.”
Ms. Taufen summarizes: NAR supports 6 of the 7 bills, those containing the following propositions:
Establish an NFIP rate cap of $10,000 per year — NAR supports this but wants to remove a requirement that homeowners file a valid elevation certificate in the previous calendar year to access the rate cap.
Remove barriers to private flood insurance while keeping NFIP viable.
Set standards for communities to develop their own flood maps and clarify the opt-out provision so it applies “only to large commercial portfolios where many buildings could be covered by one private market flood insurance policy.”
Develop plans for mitigating repetitive loss.
Requiring the Federal Emergency Management Administration (FEMA) to use replacement cost values for individual structures instead of a national average..
Double the amount of increased-cost-of-compliance (ICC) coverage and “allow homeowners access to mitigate their property before it floods.”
Below is the letter sent me by Doug Izzo of the Tampa Bay Beaches Chamber of Commerce which provides us direct links to the seven new flood insurance bills, “most good legislation,” he notes. I include it in its entirety:
There are seven flood insurance bills. Most are good legislation. The good bills are listed below
- HR 2875, the NFIP Administrative Reform Act. This bills allows for additional ICC Coverage and improves the claims process.
- HR 1558, the Repeatedly Flooded Communities Act. It now allows (as opposed to requires) the Administrator to sanction and removes the suspension of communities from the NFIP as a sanction. It essentially mirrors FEMA’s current sanctioning authority.
- HR 1422, the Flood Insurance Market Parity and Modernization Act.
- HR 2565, Uses replacement costs in determining premium values
- HR 2246, Taxpayer Exposure Mitigation Act of 2017.
- HR 2868 NFIP Policyholder Protection Act.
However, one (HR 2874 21st Century Flood Reform Act) needs changes. We are urging congress to vote no on the The 21st Century Flood Reform Act, unless major changes are made.
See below for our top concerns with the legislation.
Raises the flood insurance rate increase from 5% to 8%
Prohibits offering coverage in the SFHA for new construction
Prohibits covering the replacement value of homes over $1 million
See below for more information on these issues:
Removal of Grandfathering and Prohibition on Coverage for Certain Properties
Any renewal of coverage on grandfathered property where new maps have been adopted after construction of the structure –The legislation prohibits a renewal of coverage for grandfathered properties that have been remapped into higher risk zones beginning 1/1/21. A grandfathered property is designated as any property built to FEMA’s required Base Flood Elevation and standards at the time of construction and is thus allowed to be grandfathered in to the zone and BFE at time of construction. Under current law, if your community adopts a new map and under the new map, your property is now below the Base Flood Elevation or you are remapped into a new zone, you are not forced to pay a rate based on the new base flood elevation. Those who played by the rules and built as they were told should not be penalized under new, sometimes inaccurate, maps. This scenario is what caused premiums to skyrocket post Biggert-Waters. A helpful overview of grandfathering can be found here.
New Construction in Special Flood Hazard Areas (A or V zones) – The legislation prohibits offering NFIP coverage for new construction in the Special Flood Hazard Areas after 1/1/21.
Any structure with a $1M replacement value cost – The legislation prohibits offering NFIP coverage for any property with a replacement cost value of $1M+ in the Special Flood Hazard Areas after 1/1/21.
· Rate Increases – The legislation increases the floor of rate increases from 5% to 8%, which compound annually. This provision will impact pre-FIRM subsidized homeowners, which is about 20% of NFIP properties. These properties are already on a glide path to actuarial rates, and Congress does not need to accelerate that.
The Homeowner Flood Insurance Affordability Act retains the Biggert-Waters requirement that these properties move to actuarial rates but slowed phase in. Congress should not accelerate this mandate. Further, if the provisions regarding grandfathering outlined above are implemented, grandfathered post-FIRM properties will be subject to this increase as well.
My special thanks to Doug Izzo and the Tampa Bay Beaches Chamber of Commerce for providing us this invaluable source of information.