Homeowners across the country are breathing a little easier, now that they know there is a new law that impacts their flood insurance policies. This welcomed relief has been gradually coming over the past several weeks as Congress feverishly worked on a win-win solution to the flood insurance crisis.
A Sigh of Relief
The changes implemented came in the form of the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA), signed into law by President Obama on March 21, 2014. This law essentially addresses the unintended negative consequences of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12), primarily in regards to the skyrocketing flood insurance premiums on properties in high-risk areas.
The new law repeals or modifies some of the changes to the BW-12, which was enacted to assist the National Flood Insurance Program (NFIP) with replenishing the $24 Billion debt caused by Hurricane Katrina and other Super Storms that devastated parts of our Country in recent history.
Our government admittedly did not anticipate the turmoil that the NFIP changes would cause with the real estate market or the exorbitant increases in property owners’ flood insurance premiums that resulted. After much Bi-Partisan effort, we now have a more palatable way to ensure the financial stability of the NFIP while ultimately still holding homeowners responsible for their share of the flood insurance.
What Changed?
1. Among the issues that this law addresses, is the immediate rate relief from Insurance companies…or in other words, the Insurance companies need to cease charging homeowners the full-risk premium rates for older properties sold after May 1, 2013. FEMA will be working on new rate tables as well as insurance premium refunds for some.
2. Most important for the current real estate market, is that new buyers will assume the seller’s current rates for at least the remainder of their policy year, instead of being immediately subject to the higher rates upon closing of the transaction.
3. Additionally, some properties will have grandfather clauses restored regarding their insurance rates, and while all property owners will be on path to full risk rates, their premium increases will happen gradually. Previously there were no caps on these increases; however, as a result of HFIAA, rates will rise between 5-15% per year and will be capped at 18-25% per year depending on circumstances. Second homeowners are happy to be benefitting from the new law as well.
4. Another change, which is very reasonable, is that there will be a $25 surcharge for all primary residence policyholders ($250 for other policies) to offset those subsidized (artificially low) policies that remain in place. This will be implemented until the NFIP is out of their deficit.
5. The National Association of Realtors pushed for a new division of FEMA to address consumer concerns about the new law. FEMA listened, and will soon implement a mitigation advocacy office, in addition to a separate office that will handle appeals and flood zone map questions.
Additional Information
This is only a summary of the new HFIAA law. For more details, go to www.fema.gov, call your insurance company, or contact me.
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