News sources are saying that President Obama is "set to sign" the flood insurance bill we discussed in our last post. There were whispers of a veto earlier this year because the White House had some qualms about the bill (see our Jan. 31, 2014, post). A report from the Office of Management and Budget had questioned the fiscal wisdom of rolling back the planned rate increases from the Biggert-Waters Flood Insurance Reform Act of 2012. If rates did not increase, the National Flood Insurance Program would continue to operate with a significant deficit, the OMB said.
While earlier versions may have skirted the issue, the bill passed by Congress, the Menendez-Grimm Homeowner Flood Insurance Affordability Act of 2013, does address the deficit by establishing a system of annual reserve fund assessments -- $25 a year for primary residences and $250 a year for businesses and vacation homes.
Rather than imposing a multi-year moratorium on all rate increases, the new law will limit annual increases, a familiar approach for policyholders of Florida's state-backed Citizens Property Insurance Corp. For NFIP, the rates for a class of properties will not go up more than 15 percent a year; rates for individual policies will be limited to 18 percent increases annually.
Mendendez-Grimm also repeals the very unpopular property sales "trigger." Introduced under Biggert-Waters, the trigger would have required a homebuyer to pay the "rack rate" under the new flood maps, rather than the lower rate -- lower because of subsidies or credits -- the current owners paid. Buyers were scared off, sellers could not sell and property values plummeted under the trigger.
Biggert-Waters also required property owners to pay the full rate, again under the new flood maps, if they chose to purchase a new policy. Again, the idea was to move all policyholders into an actuarially-sound rate system. Had the rate increases not been astronomical, this trigger may have stayed in place. As it was, though, the provision did not make sense, so Menendez-Grimm does away with it.
As they say on television, but wait! There's more! We'll continue the rundown in our next post.
Source: Carrier Management, "Senate OKs Bill to Curb Flood Insurance Hikes," Andrew Simpson, March 14, 2014