Law Enacted to Prevent Significant Flood Insurance Rate Increases

Late last week the President signed into law a bill that will provide relief to millions of homeowners whose flood insurance premiums were expected to soar through the roof.  A portion of the Biggert-Waters Flood Insurance Act of 2012, designed to help the national flood insurance program (NFIP) get out of debt, required the Federal Emergency Management Agency (FEMA) to implement increased insurance rates that reflected the true cost of flood risk and put an end to subsidies on existing properties at the time of sale.  The planned increases, due to take effect next year, would have jeopardized the financial stability of homeowners across the nation.

In response, Congress passed the “Homeowner Flood Insurance Affordability Act of 2014,” which sets a cap on flood insurance premium increases, restores grandfathered rates, retains subsidized rates and provides for reforms to flood mapping procedures.  Briefly, the Flood Insurance Affordability Act requires FEMA to implement the following measures:     

Affordability:
•    Flood insurance premium rate increases for the NFIP will be capped at 18% annually;1
•    Reinstate flood insurance subsidies on existing properties at the time of sale;2
•    Reinstate grandfathering for property owners mapped into higher risk areas; 
•    Refund homeowners who overpaid premiums;3
•    Institute monthly installment payment options;
•    Strive to minimize annual premiums that exceed one-percent of total coverage provided;
•    Complete a study on how to keep the NFIP affordable. 

Flood Mapping:
•    Notify, coordinate and cooperate with communities during any mapping or map updating;
•    Provide funding to reimburse successful appeals to FEMA flood maps;
•    Provide communities credit for non-federal levees and locally funded flood mitigation procedures in new flood maps.

The Community Associations Institute (CAI) petitioned Congress on behalf of community associations that purchase flood insurance policies to adopt this law to avoid the specter of grossly increased premiums, which would have an impact on monthly maintenance fees.  We are pleased to see that the efforts of CAI have paid off with the adoption of the Flood Insurance Affordability Act. If you have any questions regarding the Flood Insurance Affordability Act or the national flood insurance program in general, please consult with your attorney. 

1. To fund subsidized rates, a $25 surcharge fee will be applied to most homeowner policies and a $250 fee will apply to non-residential or non-primary residence properties
2. Properties in compliance with previous flood maps cannot be hit with large increases when new maps show  greater risk of flooding
3. For example, to owners who purchased after Biggert Waters became law and later learned that a change in ownership ended subsidized flood insurance premiums