Does the Homeowner Flood Insurance Affordability Act “Gut” Biggert-Waters?

Six months ago we wrote about the 2012 Biggert-Waters Act (BW-12) and people’s reactions to it at that time.  In the intervening six months, a lot of reacting has happened.  Most importantly, the Homeowner Flood Insurance Affordability Act (HFIAA) was passed.

After Biggert-Waters was passed, there was a public outcry.  It was so universal across the political spectrum that Republican governors from three flood-exposed states — Mississippi, Florida, and Alabama — banded together to file a suit against FEMA.  Among their charges were that BW-12 was implemented in an arbitrary and capricious manner, without regard to affordability for the insureds and with a failure to utilize accepted actuarial principles and consider actual risk.  Specifically, these governors cited that the individual risk characteristics of a property were not fully considered.  This lawsuit was withdrawn after the passage of HFIAA, and if we look at the components of HFIAA, it’s clear that it was withdrawn because HFIAA addressed many of the states’ concerns.

What does HFIAA do?  According to a quote from R.J. Lehmann of R Street Institute, it “gut(s) any reform [passed under BW-12].”  Here’s what we gathered from FEMA’s summary:

  • HFIAA provides refunds for new policies in high-risk areas (anything written after 7/6/12) or renewals written after HFIAA whose premium increased more than 18%.
  • The new cap on rate increases for primary residences is 18%. The cap under BW-12 was a 25% increase. This old 25% cap still applies to businesses, non-primary residences, Severe Repetitive Loss Properties, and what I call “risky” Pre-FIRM properties.
  • Essentially, can now carry-forward the prior policy’s rates on your property. That is, if you sell your property, you can transfer the flood policy to the new owner at the subsidized rate. Additionally, if you dropped your policy because of the huge rate increase from BW-12, then you can buy it again at the subsidized rates.
  • In order to offset all this subsidizing, NFIP will now be trying to recoup some of the lost revenue by charging all properties an additional fee. For primary residences this is just $25, but for all other properties it will be $250. These fees will disappear only when subsidization ends.
  • Grandfathering will continue. It will also be expanded to include increases due to re-mapping. That means that the first year rate for properties newly classified as Special Flood Hazard properties will match those outside of the Special Flood Hazard Area. After the first year they will increase at the capped rate.
  • Some other changes from HFIAA include: the appointment of a Flood Insurance Advocate, whose job will be to take consumer complaints and educate the public; allowances for flood mitigation, like residential basement flood-proofing; the establishment of installment plans, higher deductibles, and a broader affordability framework to address consumer affordability issues; the reporting to Congress of premiums greater than 1% of the coverage provided.
  • The rest of HFIAA deals with the mapping issue, and takes a lot of cues from the Mississippi lawsuit: FEMA is charged with evaluating and improving data and mapping approaches used to make the flood maps and rates; accounting for improvements to a property that mitigate flood risk; considering non-structural features that will mitigate flood-risk; removing the $250,000 cap on reimbursements for map appeals, and coordinating first with communities during the re-mapping process and then reporting maps to Congress before implementing the new maps.

That is certainly a lot of targeted changes to BW-12.  Next week we’ll look at how Florida has reacted so far to BW-12, and what it means for the state after the passage of HFIAA.