Late last month, President Obama signed the Homeowner Insurance Affordability Act of 2014 (HR3370). This bill modifies and/or repeals many of the provisions that were implemented as a result of the passage of the Bigger-Waters Flood Insurance Act of 2012 (BW-12). The passage of HR3370 comes as a welcomed relief to many realtors in and around our area because BW-12 threatened to severely devalue real estate and ultimately hinder the ability of families to sale their homes. BW-12 contained several unintended consequences for flood policy holders. Pinellas was the #1 most affected county in the United States with over 40,000 structures primed to see a rate increase. Some of these rate changes as a result of BW-12 were very steep and HR3370 will give some relief to many of the family’s that faced skyrocketing premiums.
The #1 thing that we must understand about the new law is that although it was signed by President Obama and it technically is the new law, FEMA (Federal Emergency Management Agency) governs what happens with the National Flood Insurance Program (NFIP). FEMA has to issue “guidance” on the new law which basically means they’re in charge of deciding when the changes in the new law will take effect. As of now, FEMA has not issued any guidance and it’s debatable as to when they’ll offer that. In the case of BW-12, it took FEMA 9 months to issue their guidance on when those changes would be phased in, so buckle up…because it could be a while before we find out when the changes in HR3370 will go into effect!
Here’s a synopsis of HR3370 and how it changes the provisions in BW-12.
TOPIC: Subsidized Rates for Pre-FIRM (FIRM=Flood Insurance Rate Map) Homes which are homes built prior to the first FIRM in 1974.
BW-12’s Stance: Basically, this law restricted the use of the subsidized rates for Pre-FIRM homes and mandated that any policy purchased on or after 7/6/12 for Pre-FIRM structures would have to obtain an Elevation Certificate (EC) and pay the “full risk rate” from the onset. Subsequently, if a homeowner lapsed a subsidized rate policy, they too would be required to obtain an EC and pay the “full risk rate”. Additionally, all existing Pre-Firm subsidized rate policyholders would begin to see annual increases in their policy to the tune of 25% until their policy reached the “full risk rate”.
HR3370’s Amendments: Subsidized rate structures for Pre-FIRM primary homes have been reinstated with no 25% mandatory rate increases for primary homes. If a policyholder with a subsidized rate policy decides to lapse the policy, or the lender which was paying the premium for such a policy doesn’t pay the premium and the policy lapses, then the customer may not be eligible for a subsidized rate policy again and may be required to obtain an EC and pay the full risk rate. The 25% annual increase for non-primary and non-residential homes remains in place. **There are several variables that could occur with this portion of the bill and specific guidance from FEMA is still forthcoming to clean some of the speculation up**
TOPIC: Grandfathering of policies when flood zones change due to FEMA Flood Map Amendments or base flood elevation changes.
BW-12’s Stance: Eliminated grandfathering of policies all together.
HR3370’s Amendments: Grandfathering was reinstated on the model prior to BW-12
TOPIC: Annual Rate Increases
BW-12’s Stance: Prior to this legislation the statutory cap on flood policies was 10%. BW-12 changed the ceiling on rate increases to 20% annually.
HR3370’s Amendments: This change is slightly confusion but the amendment now basically states that the rate increases will be between 15-18% and capped at that 18% level.
TOPIC: Preferred Risk Policy (PRP) Eligibillity Extension (PRPEE)
BW-12 & HR3370: Both laws keep the exiting language in place. The PRP policy is designed for a home that’s located in a non-mandatory “lower risk” structure located in a B,C, or X flood plain. In 2010 FEMA allowed for policy holders that were mapped out of this zone to keep their preferred rate policy if it meets a certain set of criteria. These provisions will be left alone and will not be changed in either law.
TOPIC: Annual Premium Surcharges
BW-12’s Stance: This topic was not contained in BW-12 and is new to HR3370. Please note that this “surcharge” is different than the above mentioned Annual Rate Increases
HR3370 Amendments: $25 surcharge will be applied to all primary residential policies and $250 applied to all non-residential and non-primary residential policies.
TOPIC: Installment Premium Payments
BW-12’s Stance: Installment payments were authorized but no specifics were provided “guidance” on.
HR3370 Amendments: Monthly Installment payments are specifically mentioned.
BW-12’s Stance: Deductibles for Pre-FIRM structures with building coverage over $100,000 was changed from $1,500 to $2,000. For Post-FIRM risk the deductibles were changed from $1,000 to $1,250
HR3370 Amendments: BW-12 amendments remain however a deductible of $10,000 must be offered for residential properties.
TOPIC: Detached Structures **Note-Except for limited coverage for a detached garage, there is no “other structures” coverage in the NFIP, and each building requires a separate policy.
BW-12’s Stance: No Changes were made.
HR3370 Amendments: States that all detached structures are NOT required to carry flood insurance. The bill goes on to state that the requirement to carry the coverage on a “detached structure” may be imposed by a lender to protect their collateral. **Very ambiguous wording So we’ll see how this provision plays out in the future!**
TOPIC: Multi-Family Residential Properties
BW-12’s Stance: Increased the maximum limit of coverage for 5 or more family residential structures from $250,000 per unit to $500,000 per unit. Effective date for this implementation is set for 6/1/14
HR3370 Amendments: None.
TOPIC: Private Flood Insurance
BW-12’s Stance: Required lenders to accept private flood insurance as satisfaction of flood coverage provided the coverage in the private market met certain requirements, most notably that the policy be “at least as good as the NFIP policy”.
HR3370 Amendments: None. **Insurers likely will continue to be reluctant to accept coverage from private insurers.**
There are a handful of other topics discussed in the new legislation however they’re not as noteworthy. It’s important to remember that the FEMA has not issued any “guidance” on the new legislation and all the HR3370 Amendments listed above will not go into effect until that happens. If you have any questions about the affects of the legislation and would like an update on when the HR3370 amendments go into effect please feel free to reach out to our agency and we’ll be glad to assist.