With Premium Refunds in Process, Washington Criticism of Flood Insurance Ebbs

Insurance agent, insurance carrier and real estate lobbyists praised federal regulators in charge of the National Flood Insurance Program (NFIP) last week on Capitol Hill, agreeing that the process of issuing flood insurance premium refunds and restoring premium subsidies is proceeding better than expected.

Yes, that’s correct. The Federal Emergency Management Agency (FEMA), which administers the NFIP, was applauded by stakeholders. Even politicians, while not effusive with praise, went easy on the federal flood bureaucracy.

The lack of criticism was in contrast to the mood last year when lawmakers and businesses and their constituents and customers were up-in-arms over a 2012 law (Biggert-Waters Flood Insurance Reform Act) that lessened subsidies and caused premium increases, some of them sizable, for about 20 percent of policyholders.

Last year, FEMA took a lot of heat for implementing the unpopular Biggert-Waters law and trying to collect the increased premiums that were to help shore up the finances of the program that is $24 billion in debt. Lawmakers said they had no idea when they passed it that Biggert-Waters would cause such hardship for so many policyholders and called on FEMA to delay the premium hikes because they were unaffordable for many. Mississippi even sued to force FEMA to halt implementation.

But FEMA officials said the law gave them no leeway to delay increases due to affordability concerns.

So Congress had to fix its own mess. It took until this March but Congress changed the law. The Homeowners Flood Insurance Affordability Act (HFIAA) backtracks on the fiscal reforms of Biggert-Waters. It stops many of the increases, restores the subsidies and mandates refunds for about one million policyholders who paid higher premiums due to under Biggert-Waters.

In addition to ordering refunds and restoring subsidies, HFIAA requires changes to mapping, grants, floodplain management, mitigation promotion and other program features. It also calls for the appointment of a flood insurance advocate.

In implementing Biggert-Waters in 2013, FEMA could apparently do little right. In various forums last year the agency was criticized as being slow, inaccurate, unresponsive and reactive.

Now FEMA is not eliminating subsidies or raising rates. Now it is restoring subsidies, lowering rates and administering refunds.

Judging from recent testimony in Washington, FEMA is a lot better at stopping increases and returning money than it is at collecting it.

A staunch flood insurance advocate, Sen. Mary Landrieu, D.-La., chaired last week’s hearing of the Senate Appropriations Subcommittee on Homeland Security, a hearing she called to focus on the narrow topic of improving the accuracy of flood maps but that presented an opportunity to report on the implementation of the HFIAA.

Those testifying included Sen. Robert Menendez, D-N.J.; Craig Fugate, FEMA administrator; Chad Berginnis, Association of State Floodplain Managers executive director; Patricia Templeton-Jones, executive vice president of Wright National Flood Insurance Co. representing the Property Casualty Insurers Association of America; and Donna Smith, chair of the National Association of Realtors flood insurance task force. The Independent Insurance Agents and Brokers of America (Big “I”) also submitted testimony echoing what other business interests had to say.

FEMA was praised for moving quickly and ahead of schedule to get $100 million in refunds into the hands of the one million policyholders who “overpaid” under Biggert-Waters. Write Your Own (WYO) flood insurers are to begin mailing checks Oct. 1 and should be done by the end of the year under the FEMA administrative orders.

The refunds under HFIAA will be going to people who purchased new homes after Biggert-Waters became law in July 2012, or who didn’t have flood insurance before that date, or whose insurance lapsed. Their revised premiums will be based on premium schedules in effect Oct. 1, 2013.

(Not everyone gets refunds or reduced rates under HFIAA. Close to 80 percent of NFIP policyholders paid a full-risk rate prior to either Biggert-Waters or HFIAA and are “minimally impacted” by either law, said Fugate. HFIAA requires gradual rate increases of five to 15 percent (but no more than 18 percent for any individual policyholder) on properties now receiving subsidized rates instead of immediate increases to full-risk rates as happened under under Biggert-Waters. These gradual rates will start Oct. 1 2014. However, there are some exceptions to these general rules and limitations, too. Older commercial properties, non-residential properties, severe repetitive loss properties and buildings that have been severely damaged that now have subsidized rates will continue to see up to a 25 percent annual increase until they reach their full-risk rate, according to FEMA.)

FEMA said the refunds will range from a few dollars to a high of $10,000 or more but the average refund will be $100.

FEMA was also praised for moving quickly to restore the “grandfathering” of properties and suspend the “triggers” that caused immediate loss of subsidies. Also, NFIP staff was heralded for holding regular conference calls with industry stakeholders on HFIAA and often implementing technical advice provided during these calls.

Here are some excerpts from the chorus of praise:

“In stark contrast to the uncertainty and confusion during the initial implementation of Biggert-Waters, we are happy to report to the committee that, to date, the roll-out of HFIAA has gone rather smoothly,” said Charles Symington, Big “I” senior vice president for external and government affairs.

“FEMA seems determined to get the law’s implementation right, this time.,” said NAR’s Smith, who is a broker with Berkshire Hathaway Home Services, C. Dan Joyner Realtors in Greenville, South Carolina.

Smith said that within a month of HFIAA’s enactment, FEMA issued rate-relief guidelines to insurers so that homebuyers would not have to pay more than current owners would at the time of their next flood insurance policy renewal. The relief also applies to current homeowners who bought a new policy or let one lapse, not just to owners who bought property after the Biggert-Waters act went into effect last year.

Within two months of implementation, FEMA announced its intention to hold 2013 rates constant through 2015 and in some cases even reduce rates. NAR, which said it has received no real consumer complaints since HFIAA passed, also thanked FEMA for providing timely guidance to insurers on the refunds.

“We have some significant victories to discuss and some challenges and issues that remain, but overall the implementation of HFIAA has gone more smoothly than that of Biggert-Waters,” said Templeton-Jones of Wright National Flood and PCI.

While there was praise for how HFIAA implementation is going, FEMA was not given all the credit. Symington, Templeton-Jones and others credited a provision in HFIAA requiring the NFIP to communicate regularly throughout the HFIAA implementation process for the quick and accurate implementation thus far of HFIAA.

The business lobbies said there is still work to be done. They noted that FEMA has yet to fill the position of a flood insurance advocate created under HFIAA.

“Homeowners need an independent government advocate who has experience and access to the necessary information to fully investigate and resolve suspect rate quotes,” said NAR’s Smith.

The Big “I” said that while NFIP did well in getting out refund information for carriers and consumers, it has not done as well providing agents and brokers with the information they need to explain the refunds to consumers.

Meanwhile, the politicians were more about making sure there are no repeats like Biggert-Waters going forward than they were about giving federal administrators any credit for the current state of affairs, or taking any responsibility for previous errors.

U.S. Senator Thad Cochran, R-Miss, encouraged FEMA to continue improving its communication with the public as it works to implement reforms to the NFIP. “The long-term success of the NFIP is not only contingent on FEMA’s thoughtful and responsible implementation of reforms, but also whether homeowners, businesses and whole communities understand and trust in these changes,” Cochran said.

Sen. Landrieu, who said she was happy to learn of the positive reports from the businesses interests, pressed FEMA’s Fugate on the need for more accurate and reliable flood maps. She noted that the law now mandates that maps recognize local as well as federal levies.

“Our work is far from over to build a better flood insurance program that we can live with, grow with and prosper with. This cannot and will not happen until we have accurate and reliable flood maps,” Landrieu said. “FEMA’s flood maps are the foundation of our local, state and national approach to floodplain management, yet only 52 percent of our nation’s flood maps are certified as accurate and up-to-date under the current program. That is unacceptable.”

Sen. Menendez said he isn’t convinced all the errors have been corrected. He cited cases of two constituents who rebuilt their homes after Superstorm Sandy in keeping with government standards only to have premiums go up from $250 to $34,000 in one case and $500 to $30,000 in the other.

Menendez blamed inaccurate maps.

FEMA’s Fugate said that about 50 percent of all flood maps are current, 40 percent are in need of review, and 10 percent are out of date.

Landrieu vowed to get FEMA the money and resources it needs to update all maps by 2017, the year Congress must decide whether to renew the flood insurance program.