Flood News: Homeowner Flood Insurance Affordable Act (HFIAA)

blog-insurox-flood-insuranceOn March 21, 2014 President Obama signed and put into law the Homeowners Flood Insurance Affordable Act (HFIAA). The act was drafted to repeal and modify parts of the Biggert-Waters Flood Insurance Act (BW-12) of 2012.

In the last decade, various areas of the US have incurred hurricanes and storms that ripped through causing extensive damage. We all remember footage of the devastation that hurricanes Katrina (2005) and Sandy (2012) left behind. Many properties were destroyed, washed away, and in need of rebuilding. These storms also left the National Flood Insurance Program (NFIP) in debit over $24 billion dollars to the US Treasury.

The extensive claims and delays in payouts highlighted the need for a reform to how the Federal Emergency Management Agency (FEMA) and other agencies run the flood program. As a result, Congress passed BW-12 in July 2012 calling for changes to the Flood Insurance Rate Maps (FIRM), increases in premium rated to better reflect flood risk so that they can prepare for future flooding and so that the NFIP can become more financially stable.

Although it was well-intentioned, BW-12 resulted re mapping of flood zones, in drastic premium rate increases, some as much as 25% of the annual cost, causing a backlash from affected home and property owners. The result of which was many complaints to Senators and Congress rethinking the Biggert-Waters Act. Although the ultimate goal is to revise the flood program and scale back or eliminate the subsidized rates that some homeowners have been receiving, BW-12 was too abrupt of a change and so the new Homeowners Flood Insurance Affordable Act (HFIAA) was imposed to modify some of the policy changes and to ease into changing the flood program.

HFIAA requires that properties that had received a lower than realistic (subsidized) rate on their flood policy have a gradual rate increase instead of an immediate increase to the full-risk rate, which was the case for some when BW-12 was imposed. HFIAA encourages FEMA to minimize the number of policy that have premiums which exceed 1% of the coverage amount. Such policies, where the premium is more than 1% of the coverage amount, must now be reported to Congress by FEMA. The new Affordability Act also increased the maximum deductibles allowed, which gives homeowners the option to increase their deductible to help lower the cost of their flood policies.

HFIAA also imposes a new surcharge, which will be added to all policies. The fee will be included on all policies, including full-risk rated policies. A flood policy for a primary residence will include a $25 surcharge and all other policies will include a surcharge of $250. The surcharged fees will be used to offset subsidized policies and to help reach the financial stability goals of BW-12. Surcharges will be added to policies annually until all Pre-FIRM subsidies are eliminated.

For some, the Homeowners Flood Insurance Affordability Act will result in a refund. The new law requires refunds for the excess premiums that were collected as a direct result of BW-12. These refunds will only affect a small percentage of the overall National Flood Insurance policies. Refunds will NOT apply to any policyholders of non-primary residence, business, “severe repetitive” loss properties, or buildings that were substantially damaged or improved, regardless if they are paying the 25% annual increased rate as required by BW-12. Who will get a refund? As per information from FEMA’s website:

  • Refunds will apply to policyholders in high-risk areas that were required to pay their full-risk rate after purchasing a new flood insurance policy on or after July 6, 2012.
  • Refunds MAY apply to policyholders who renewed their policy after the HFIAA law was enacted on March 21, 2014 and whose premium increased more than 18%.

For more information about the Homeowners Flood Insurance Affordability Act and the flood system, please visit the FEMA website.

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