Proposed NFIP Rate Rollbacks Roil Insurers

Congress is currently deflecting intense pressure to roll back virtually all the increases in flood insurance premiums imposed by a 2012 National Flood Insurance Program reauthorization law that won strong support when it was enacted.

Amongst the opponents of the rollback are Write-Your-Own (WYO) insurance companies, who have already adjusted computer programs rate increases effective Oct. 1, per a provision in the law impacting second homes, businesses, and repetitive loss properties, plus the existing (pre-FIRM) properties that would lose their grandfathering upon resale or refinancing. 

At the moment, congressional leadership is apparently supporting efforts to delay for one year premium rate increases imposed on properties if they are remapped.

WYO companies are less opposed to this as the lesser of evils because this provision is not scheduled to go into effect until next year and the Federal Emergency Management Agency (FEMA) hasn’t even provided WYO companies instructions pertaining to the reprogramming of their computers for this provision, Sec. 207.

Louisiana interests, led by Sen. Mary Landrieu, D-La., effectively want to roll back—hopefully permanently—virtually all the rate increase imposed by the 2012 law.

She is being pushed the most by Rep. Bill Cassidy, R-Baton Rouge, who is a Republican candidate for her seat. Cassidy authored an amendment to the Homeland Security appropriations bill in the House several weeks ago that did the same thing as Landrieu seeks.

South Louisiana parish residents and other interests contend the law makes thousands of “grandfathered” homes unsellable and that FEMA is underestimating the impact of rate changes.

As to the delay in implementing Sec. 207, the Senate Appropriations Committee took an important step by passing the Homeland Security Department budget for 2014, 21-9.

The provision in the Homeland Security appropriations bill will delay enforcement of Sec. 207 of the law for one year by barring use of federal funds to implement the rate hike.

The provision requires rate increases on all properties remapped into a higher-rated flood zone, even if the property had been built to specifications.

Under the law, the increases would be phased in over 5 years.

The action by the full Senate Appropriations Committee was apparently based on an understanding by a strong majority of Congress that the impact of the 2012 law was not fully perceived, especially the political ones from the rate increases, before the law was passed—and time is needed to revise it.

As an industry official and a Federal Emergency Management Agency official both stated, “They have made such a mess, even the cleanup is going to be messy.”

The lobbyist said, for example, “Banks that escrow for flood, and insurance companies that need to make sure that the policies are in place with premiums paid, are going to be very confused by all this  -  so too will the policyholders who will not understand all the conflicting information that they will be getting.”  

FEMA contends that the revisions in the National Flood Insurance Program enacted last year does not affect more than 400,000 of Louisiana’s nearly 500,000 flood insurance policies because their flood insurance rates are already appropriately set.

But, Louisiana residents are generally upset that the reauthorization legislation includes rate hikes of up to 25 percent a year on non-primary residences, businesses, and homes that have flooded multiple times.

They acknowledge that primary residences currently receiving subsidized “grandfathered” rates are not affected until the home is sold or the policy lapses.

That includes “grandfathered” properties were built before the NFIP started in 1968 and also applies to properties that have seen their flood risks increase over the years.

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