House Passes Flood Insurance Bill; Key Senators Sign On

The U.S. House of Representatives Tuesday evening passed legislation to curb some of the premium increases in the nation’s flood insurance program that have been causing “sticker shock” for property owners.

H.R. 3370, the Homeowner Flood Insurance Affordability Act, sponsored by Reps. Michael Grimm (R-N.Y.) and Maxine Waters (D-Calif.), passed 306-91 under a “suspension of the rules” requiring a two-thirds vote in favor. The measure reverses some of the changes to the National Flood Insurance Program (NFIP) introduced by the Biggert-Waters Flood Insurance Reform Act of 2012.

The Senate passed its version of flood insurance legislation, S. 1926, in January by a 67-32 vote. The Senate bill takes a broader swipe at the NFIP and delays most of the reforms and increases of the Biggert-Waters law for four years.

However, key senators, including Sen. Robert Menendez, (D-N.J.), the sponsor of the Senate version, said they would accept the House bill.

The House version, known as the Grimm-Waters bill (see summary below), would provide retroactive refunds for people who have had large flood insurance rate increases due to the sale or purchase of a home, cap average annual premium increases at 15 to 18 percent and allow subsidies for insurance rates that are based on current flood maps.

It also includes non-mandatory language directing the Federal Emergency Management Agency to “strive to minimize the number of policies with annual premiums that exceed one percent of the total coverage.” The House bill also requires FEMA, which administers the flood program, to notify communities and members of Congress of remapping as well as models used in the mapping process. And it includes assessments on property owners to build up an NFIP reserve fund.

Rep. Grimm, a House sponsor of the measure, called the vote a “tremendous victory” for his constituents “as well as one of Congress’ most consequential bipartisan achievements in recent years.”

“I hope that the passage of H.R. 3370 will serve as an example for future legislators about the good that we can provide for those we represent when we put people over politics,” Grimm said in a statement. “Without a doubt, I will always remember my vote tonight as one of the proudest moments of my life, and hold it up as a constant reminder that through true leadership, common ground is never beyond our reach.”

Rep. Waters acknowledged that the bill will help undo some of the negative effects of the 2012 law she helped write. “If enacted into law, this legislation will provide homeowners living in flood-prone regions with clarity and certainty that the cost of their insurance will not force anyone from their homes, lead to depressed home prices, or undercut their ability to buy or sell a home,” said Waters. “I urge passage of this legislation by the House and Senate without delay.”

Other House members in coastal states welcomed the vote.

“Congress never intended to punish responsible homeowners,” Rep. Steven Palazzo (R-Miss.) said on the floor of the House. “That is exactly what FEMA is doing as it implements the law with flawed maps and procedures.”

However, Rep. Candice Miller (R-Mich.), who opposed the legislation, called on Michigan Governor Rick Snyder to pull the state from the NFIP completely.

“[S]ince the federal flood insurance program started, homeowners in Michigan have paid multiple times more in premiums than has been paid back in claims. This is wrong. And, just like Obamacare, this costly, unworkable, unfair and failed program is exactly why the federal government shouldn’t be in the insurance business,” said Miller.

Miller called on Governor Rick Snyder to “opt Michigan out of the program altogether and instead seek a state or private alternative that stops forcing Michigan homeowners to serve as ATM machines for the rest of the nation.”

Following the House vote, Menendez called for swift agreement by the Senate.

“As a result of improvements made during bipartisan negotiations, I’m very pleased that the bill being put forth in the House will end the most egregious problems with the flood insurance program and bring some real relief to thousands of homeowners who desperately need our help,” said Menendez. “I’m encouraged by this progress and hope we can bring the bill over the finish line very, very soon.”

Menendez was not the lone senator accepting the House version.

“Although it doesn’t go as far as the bill we passed in the Senate, it’s good the House has approved some curbs on flood insurance. For the sake of policyholders facing massive rate hikes, I hope we can get a final version sent to the president quickly,” said Sen. Bill Nelson (D-Fla.).

Senators in other flood-prone states, including Sen. Mary Landrieu (D-La.) and Sen. David Vitter (R-La.), indicated they will urge the Senate to support the House bill as a compromise.

The Senate version is not only broader in its impact on Biggert-Waters but also includes a provision to create the National Association of Registered Agents and Brokers (NARAB), a legislative priority of insurance agents. The House version does not include the NARAB language.

The Independent Insurance Agents and Brokers of America (Big “I”) welcomed the House vote and said it would work to have the final version of any legislation also include the NARAB provision, although it said there is no indication at this time whether that is likely.

“The Big ‘I’ is pleased that the House has also passed this sound piece of legislation that addresses a major legislative priory for the association: mitigating the rate shock unintentionally caused by Biggert-Waters,” said Robert Rusbuldt, Big “I” president and CEO. “This bill aims to reduce some of the harmful effects of Biggert-Waters without undoing the numerous positive provisions within the law.”

However, the insurance industry is split on the bill. The National Association of Mutual Insurance Companies (NAMIC) called the House bill an unnecessary “overreaction” to problems in the flood insurance program.

“Resolving those few cases where rate increases far exceeded what was anticipated by the 2012 reforms to the National Flood Insurance Program quickly became a choice on Capitol Hill between good policy and good politics, and unfortunately, but not surprising in an election year, politics won the day,” said Charles Chamness, president and CEO of NAMIC. “With today’s vote, the House joins the Senate in stepping away from much-needed reforms that would make the NFIP sustainable for future generations, and instead chose to provide cheap flood insurance coverage to small minority of properties at the expense of everyone else.”

The Property Casualty Insurers Association of America (PCI), whose members include more than two-thirds of the insurers that partner with the NFIP through the “write-your-own” (WYO) program to sell policies and administer this federal program, issued a statement that appeared to support the House action.

“We appreciate that the House amendment to H.R. 3370 will address some of the ‘unintended consequences’ impacting flood insurance policyholders following the enactment of the Biggert-Waters Flood Insurance Reform Act of 2012,” said Nat Wienecke, senior vice president, federal government relations for PCI. “We thank Congress for working with the industry to address the technical and timing realities of implementing any programmatic changes to the National Flood Insurance Program (NFIP) ensuring a thoughtful and transparent implementation process for policyholders and other stakeholders.”

Realtors, homebuilders and lenders generally support the legislation to unwind Biggert-Waters while some environmental and taxpayer groups oppose it.

According to the Congressional Budget Office, the House bill would have no effect on the NFIP’s finances over and would pay for itself as it includes annual reserve fund assessments of $25 a year for primary residences and $250 a year for businesses and vacation homes.

Menendez said he had been working closely with House and Senate leaders to ensure the House bill would provide adequate relief to homeowners. Menendez said the House legislation “closely parallels” the Senate bill. He went so far as to refer to the final bill as the Menendez/Grimm Homeowner Flood Insurance Affordability Act of 2014. His office provided the following summary of the bill:

Prevents Skyrocketing Rate Increases

• Creates a firewall on annual rate increases – Prevents FEMA from raising the average rates for a class of properties above 15% and from raising rates on individual policies above 18% per year for virtually all properties.

• Repeals the property sales trigger – Repeals the provision in Biggert-Waters that required homebuyers to pay the full-risk rate for pre-FIRM properties at the time of purchase. This provision caused property values to steeply decline and made many homes unsellable, hurting the real estate market. Under the Menendez/Grimm Bill, homebuyers will receive the same treatment as the home seller.

• Repeals the new policy sales trigger – Repeals the provision in Biggert-Waters that required pre-FIRM property owners to pay the full-risk rate if they voluntarily purchase a new policy. This provision disincentivizes property owners from making responsible decisions and could hurt program participation. The Menendez/Grimm Bill allows pre-FIRM property owners to voluntarily purchase a policy under pre-FIRM conditions.

• Reinstates grandfathering – Repeals the provision in Biggert-Waters that would have terminated grandfathering. If grandfathering was terminated, property owners mapped into higher risk would have to either elevate their structure or have higher rates phased in over 5 years. The Menendez/Grimm Bill allows grandfathering to continue and sets hard caps on how high premiums can increase annually.

• Refunds homeowners who overpaid – Requires FEMA to refund policyholders for overpaid premiums.

• Affordability goal – Requires FEMA to minimize the number of policies with annual premiums that exceed one percent of the total coverage provided by the policy.

Additional features

FEMA Transparency and Outreach Requirements

• Reimburse successful appeals – Allows FEMA to utilize the National Flood Insurance Fund to reimburse policyholders and communities that successfully appeal a map determination. FEMA currently has the authority to reimburse successful appeals of map findings, but Congress has never appropriated funding for this purpose. Making appeal reimbursement an eligible expense of the NFIF would give FEMA the incentive to “get it right the first time” and repay homeowners and communities for contributing to the body of flood risk knowledge, according to backers.

• Flood insurance advocate – Establishes a Flood Insurance Advocate within FEMA to answer current and prospective policyholder questions about the flood mapping process and flood insurance rates. The advocate will be responsible for educating policyholders about their individual flood risks, their options in choosing a policy, assisting property owners through the map appeals process, and improve outreach and coordination with local officials, community leaders, and Congress.

• Urban mitigation fairness – Requires FEMA to establish guidelines on alternative mitigation methods for urban structures where tradition mitigation efforts such as elevation are impractical, i.e. rowhouses in Hoboken. This section makes clear that such alternative forms of mitigation shall be taken into account in the calculation of risk premium rates.

• Clear communication – Requires FEMA to clearly communicate full flood risk determinations to policyholders even if their premium rates are less than full risk. This helps to inform policyholders as to their true flood risk.

• Fairness for small businesses, houses of worship, non-profits and low-income homes – Requires FEMA to report to Congress on the impacts of rate increases on small businesses, non-profit entities, houses of worship, and residences with a value equal to less than 25% of the area median home value. If FEMA determines there is an effect on affordability for these properties, it must provide recommendations to Congress within 3 months after making the determination.

• Mapping accuracy – Requires FEMA to certify its mapping process is technologically advanced and to notify and justify to communities that the mapping model it plans to use to create the community’s new flood map are appropriate. Also requires FEMA to send communities being remapped the data being used in the mapping process.

• Notification – Requires FEMA, at least 6 months prior to implementation of rate increases as a result of this Act to make publicly available the rate tables and underwriting guidelines that provide the basis for the change, providing consumers with greater transparency.