On March 21, 2014, the Homeowner Flood Insurance Affordability Act of 2014 (the Flood Insurance Act) was signed into law. This Act modifies planned flood insurance reforms that would have dramatically increased premiums for many property owners in high-flood risk areas. Here are the key provisions of the Act that protect homeowners from rate increases:
Reinstatement of Grandfathering Provision
The Flood Insurance Act reinstates the Flood Program's grandfathering provision, which was to be phased out under the Biggert-Waters Act. Grandfathered properties were to be moved to risk-based rates upon the adoption of a new Flood Insurance Rate Map. New rates were due to increase by 20 percent per year for five years. The Flood Insurance Act reinstates the grandfathering approach that prevents rate increases for existing properties when the flood risk in their area is increased.
Continuation of Subsidized Rates
The Flood Insurance Act repeals a provision of the Biggert-Waters Act that would have required an immediate premium increase when a home was sold. This means that a change in home ownership no longer immediately changes the rate of insurance.
In addition to subsidies, the Flood Insurance Act provides refunds of premiums to property owners who purchased homes after the Biggert-Waters Act became law and experienced an immediate increase of their insurance rates.
Limit to Annual Premium Increases
The Flood Insurance Act limits yearly premium increases to an average of 15 percent per year for nine specific property categories listed by FEMA. It also limits all increases to no more than 18 percent per year.
Under the Flood Insurance Act, FEMA is encouraged to limit premiums to no more than 1 percent of the value of coverage for most policyholders.
Funding for Subsidized Rates
The cost of retaining subsidized flood insurance rates will be funded through a $25 surcharge for most homeowner policyholders. A $250 fee will apply for non-residential property owners and non-primary residence homeowners.
Although the Flood Insurance Act maintains the subsidized rates, it also retains a provision in the Biggert-Waters Act that will move toward the use of actuarial rates over time to increase the solvency of the National Flood Insurance Program.
The impact of the Flood Insurance Act on each property owner will depend on a number of factors. Contact Clarke & Sampson for more information on how this law may affect your premium costs and coverage.