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Flood insurance problem: Delays, hopes and lawsuits


WASHINGTON – Dec. 18, 2013 – Initially heralded as a long-overdue relief measure for homeowners at risk of flooding, 2012’s Biggert-Waters Flood Insurance Reform Act extended the nation’s National Flood Insurance Program (NFIP) for five years and took steps to make the program financially self-sustaining.

However, the “financially self-sustaining” part created a huge burden for some Florida homeowners in 2013 – a side effect not discovered until some of Biggert-Waters’ changes kicked in. The greatest impact largely hit owners in older homes built before FEMA (Federal Emergency Management Agency) created its flood maps.

The main problem of higher costs stems from FEMA’s definition of “actuarial rates,” or the fair insurance premium a homeowner should pay based on his property’s risk from flooding. While all policyholders would one day pay the actuarial rate, Biggert-Waters phases in the increases.

However, some increases are so high that even a 25 percent increase leveled on second homeowners in October created hardship. And in some cases, the increase doesn’t phase in – it arrives all at once, such as the time a home is sold.

The biggest impact hit home sellers and Realtors working in their communities. If an owner’s home is in a FEMA-identified floodplain and the owner has a subsidized (pre-flood insurance rate mapping) NFIP policy – one that is not yet at actuarial rate – a buyer must immediately pay the higher flood insurance rate at the time of sale. That change makes some homes worth less and is short-circuiting some sales under contract.

Lawmakers, Realtors and homeowners are now seeking changes to ease the unexpected burden on homeowners and sellers. A number of steps have been taken.

Federal action

Legislation to ease the high cost of flood insurance has bipartisan support in the U.S. House of Representatives, though bills have stronger support from lawmakers residing in flood-prone states, such as Florida. A number of bills have been filed, but one with the backing of at least 170 representatives seems to have the greatest chance of passage.

However, a procedural effort to advance the bill for a quick vote last Thursday stalled. It takes only one objection to derail a full Senate vote, and Kansas Sen. Pat Roberts objected, saying it needed more study by the Senate Banking Committee. Roberts said he raised the objection on behalf of Idaho Sen. Mike Crapo who serves on the committee.

While that doesn’t stop the bill, it probably bumps any hope of passage into 2014.

NAR’s Call for Action

The National Association of Realtors® (NAR) launched a major effort through a “Call for Action” to tell Congress about the flood insurance problem and delay implementation. Nationwide, almost 95,000 Realtors participated. The Call for Action officially ended Friday, Dec. 13, at 8 p.m.

“Florida’s Realtors came out in force for the Call for Action,” says John Sebree, Florida Realtors senior vice president of public policy. “Fifteen percent of members took the time to tell their representatives how the Biggert-Waters change impacted their communities and homeowners. We had 8,000 more involved Realtors than California, which came in second.”

State efforts

While Biggert-Waters is a federal law and can only be changed at the federal level, the states have some leeway regulating the sale of flood insurance.

In Florida, Sen. Jeff Brandes, R-St. Petersburg, introduced a bill in the Florida Senate, SB 542, that would encourage private insurance companies to offer primary flood insurance in the state. The bill also changes some of the flood insurance calculations to make it more affordable for homeowners and less risky for insurers.

Sebree calls any effort to expand private flood insurance coverage a win-win. “We hold out hope for a federal solution, but what if that doesn’t happen?” he says. “And even if the federal government successfully passes a bill to help homeowners, SB 542 would still encourage diversification in the flood insurance market.”

According to Sam Miller, executive vice president of the Florida Insurance Council, there is “some appetite on the part of private insurers (to offer flood insurance coverage), but just how much remains to be seen.”

To become law, however, a bill must pass the Senate and the House and be approved by Gov. Rick Scott. A companion bill has not been filed in the House so far, and most observers, including Sebree, expect the bill’s form to change before final passage.

FEMA lawsuit

The implementation of Biggert-Waters faces an attack on a different front – a lawsuit filed by the State of Mississippi that other states, including Florida, have joined.

The lawsuit claims that flood policy increases mandated by Biggert-Waters aren’t valid because FEMA didn’t follow rules created within the Act. While the Act calls for homeowners to pay actuarial flood insurance rates and to phase them in for many owners, it also required FEMA to conduct an affordability study within 270 days of the law’s July 2012 passage to gauge its impact.

However, the affordability study has still not been performed, and the rate increase on many homeowners surprised almost everyone. The lawsuit asks the court to block higher flood insurance rates until an affordability study is completed.

It takes time for any lawsuit to work its way through the legal system, so even if successful, it’s not clear when the lawsuit could benefit homeowners, assuming Mississippi prevails.

It’s also unclear if FEMA will conduct an affordability study soon. On Friday, the agency said the National Academy of Sciences must undertake the study, per a directive from Congress; but the Academy’s $1.5 million cost and two-year timeframe for completion also conflicts with part of Biggert-Waters.

FEMA says it still plans to move ahead with the study, however.

“There’s hope that we can find a workable solution to this problem in 2014,” Sebree says. “Florida Realtors, the National Association of Realtors and the State of Florida have all been working hard to find help for our state’s impacted homeowners.”

© 2013 Florida Realtors®

Related Topics: Property insurance