Congress Approves Bipartisan Fix to National Flood Insurance Program
Homeowner Flood Insurance Affordability Act limits dramatic premium increases, includes Reed amendment on voluntary, community-based flood insurance policies
WASHINGTON, DC – In a 72–22 vote, the U.S. Senate today joined the House of Representatives in passing a bipartisan bill to limit steep flood insurance premium increases hitting some homeowners under the National Flood Insurance Program (NFIP). The Homeowner Flood Insurance Affordability Act, expected to be signed into law by President Obama, includes an amendment authored by Senator Jack Reed requiring FEMA to study the possibility of making voluntary, community-based flood insurance policies available through the NFIP.
In 2012, the Biggert-Waters Flood Insurance Reform Act was enacted as part of the highway and transit reauthorization bill in order to prevent the NFIP from lapsing and leaving thousands of property owners without access to flood insurance protection. The law sought to phase out or eliminate federal subsidies for certain flood-prone properties in order to address the program’s growing debt. But since taking effect in July of 2012, FEMA’s implementation of the law has resulted in a number of unintended consequences, including reports by some policy holders that their premiums were increasing up to ten-fold from one year to the next. States like Rhode Island with a high percentage of properties that predate the flood insurance program (so-called “pre-FIRM” or pre-Flood Insurance Rate Map properties) have been particularly hard hit by these premium increases.
Under the bill, owners of “pre-FIRM” primary residences will be able to keep their typically lower “pre-FIRM” rates. Anyone who purchases the property as a primary residence will get the same rate. Property owners who purchased a “pre-FIRM” primary residence while the Biggert-Waters Act was in effect and were charged a higher actuarial rate will have their rate adjusted and will be entitled to a refund. The bill also allows FEMA to continue lower “grandfathered” premiums for certain properties that are newly-mapped into the floodplain. Under the Biggert-Waters Act, FEMA could increase rates by an average of 20% per year; the new bill lowers that average increase to 15%.
“This legislation is good news for homeowners and provides much-needed relief for those who were facing staggering increases in their flood insurance premiums,” said Reed. “The National Flood Insurance Program is vital to protecting Rhode Island homeowners, businesses, and property values throughout the state, and I’m glad Congress was able to come together in a bipartisan way to provide policy holders with a comprehensive, long-term solution that will ensure financial stability and predictability in the NFIP and the flood insurance market.”
While this rate relief in this bill is important, it is also important for homeowners to know and understand their flood risks so that they can take steps to guard against flood damage and reduce their premiums. In just two events since 2010, Rhode Island has seen the largest payments of flood insurance claims in the history of the program in the state, totaling approximately $70 million.
Included in the legislation is a key provision authored by Senator Reed requiring FEMA to study the possibility of making voluntary, community-based flood insurance policies available through the National Flood Insurance Program. This kind of voluntary, community-based flood insurance plan could potentially give communities the option to purchase blanket policies for all properties in their communities or a portion of their communities. This could help localities to offer more affordable insurance policies to all their residents and provide greater incentives for community-wide mitigation activities to help reduce risk and insurance costs.
“Community-based flood insurance is a policy matter well worth studying,” added Reed. “If local governments were able to spread the cost of premiums equitably among property owners and play a greater role in mitigating the risk of flooding for the entire community, that could mean both peace of mind and a higher degree of insurance premium affordability for entire communities of policy holders.”
More than 5.5 million people currently hold flood insurance policies in more than 21,800 communities across the country. According to a report by the Rhode Island Emergency Management Agency (RIEMA), there are currently more than 16,000 NFIP issued policies in Rhode Island (county-by-county breakdown: Bristol: 2,141; Kent: 2,439; Newport: 3,016; Providence: 2,668; Washington: 5,859) and the average premium in Rhode Island is $1,343 annually. About 6,800 of those policies are subsidized, according to FEMA. In general, FEMA and GAO have reported subsidized premiums represent only about 40-45 percent of the full flood risk.