Senate Approves Bill to Curb Flood Insurance Hikes

The Senate today went along with the House of Representatives by passing a bill to reverse flood insurance reforms and curb flood insurance premium increases.

The Senate approved H.R. 3370, the “Homeowner Flood Insurance Affordability Act of 2013,” by Sen. Bob Menendez (D-N.J.) and Rep. Michael Grimm (R-N.Y.).

The bipartisan bill unwinds some of the changes in the National Flood Insurance Program (NFIP) introduced by the Biggert-Waters Flood Insurance Reform Act of 2012. It amends certain provisions that are causing premiums to jump in some parts of the country.

The Senate approved the bill 72-22 (see how senators voted below). The House passed H.R. 3370 on March 4 in a 306 – 91 vote.

The Menendez-Grimm bill restores “grandfathering” of policies located in communities with new flood maps. It also reinstates subsidies for pre-FIRM properties that are bought and sold.

“Thanks to a strong, bipartisan effort,” said Sen. Menendez, “we have averted the manmade perfect storm that would have crushed thousands of families under the weight of skyrocketing flood insurance rates, forced many from their homes, plummeted property values and destroyed entire communities.”

The Senate had passed its own, broader flood insurance bill (S.1926) but agreed to go along with the House version.

Sen. Johnny Isakson, R-Ga., a sponsor along with Menendez of the original Senate bill, praised the Senate vote. “I am thrilled the Senate was able to come together in a bipartisan manner today to protect millions of hardworking families across the country from the steep increases in their annual flood insurance premiums,” said Isakson.

“It’s not everything I wanted for homeowners, but it’s significant protection from unconscionable rate hikes,” said Sen. Bill Nelson (D-Fla.), another proponent.

According to the Congressional Budget Office, the bill would not add to the $25 billion debt of the NFIP and would pay for itself through annual reserve fund assessments of $25 a year for primary residences and $250 a year for businesses and vacation homes.

The Menendez-Grimm bill now goes to President Obama for his signature. The White House has expressed concern about rolling back the Biggert-Waters reforms.

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

The insurance industry was split over it.

The National Association of Mutual Insurance Companies (NAMIC) has called the bill an unnecessary “overreaction” and said it is disappointed in today’s Senate vote.

“Today’s vote continues a move down the wrong path by Congress on flood insurance reform,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC.

Nat Wienecke, senior vice president, federal government relations for Property Casualty Insurers Association of America said the bill addresses some of the “unintended consequences”of Biggert-Waters.

The measure was supported by independent agents, although they preferred the Senate version because it also contained provisions to streamline agent licensing and create the National Association of Registered Agents and Brokers (NARAB).

“Today’s Senate vote represents a major victory for independent insurance agents, as Section 207 and the bought/sold provision of Section 205 were the two specific items that the Big ‘I’ has been asking Congress to revisit,” said Charles Symington, Big “I” (Independent Insurance Agents and Brokers of America) senior vice president for external and government affairs. “The startling pace with which Congress acted in order to fix the unintended effects of these two provisions in Biggert-Waters, itself less than two years old, should be commended.”

The Big “I” has vowed to continue to work to get the Senate to approve the NARAB legislation, which has been separately approved by the House.

Opponents of both the House and Senate bills argued that the Biggert-Waters reforms and the law’s scaling back of premium subsidies, changes intended to address the $25 billion deficit of the NFIP, should be left intact. Some called for a targeted fix to help homeowners in need rather than a broad repeal of the 2012 changes.

Sen. Richard Shelby (R-Ala.) was among those who voted no.

“One of the goals of the reforms was to ensure that the 5.6 million flood insurance policyholders could collect on their policies if they were ever to suffer a flood loss – something that cannot be guaranteed by a flood insurance program that is currently $25 billion in debt,” Shelby said in a speech on the bill. “The program is bankrupt and only operating by the grace of the American taxpayer.”

Shelby said problems with the implementation of Biggert-Waters could be addressed in “discrete ways that do not require the ‘stop everything’ approach” of this legislation.

Menendez said the House legislation “closely parallels” the Senate bill. His office provided the following summary of the Menendez-Grimm bill:

• 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.

• 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.

Senate Roll Call Vote on H.R. 3370 by State