The U.S. Senate passed a bill this week delaying huge premium hikes for four years for homeowners who buy flood protection through the federal National Flood Insurance Program (NFIP).
The bill, approved 67-32, guts the Biggert-Waters Flood Insurance Reform Act, which Congress approved in 2012 to change key provisions in the NFIP and slice its $24 billion deficit.
Under Biggert-Waters, homeowners living in high-risk areas, including coastal regions in Louisiana, Florida and New Jersey, would shoulder much more of flood insurance costs.
The bill, S. 1926 and also known as the Homeowner Flood Insurance Affordability Act, must now face the U.S. House of Representatives, where support is less certain. Speaker John Boehner, R-Ohio, and Financial Services Committee Chairman Jeb Hensarling, R-Texas, have said they prefer a more moderate approach that doesn't sacrifice cost-cutting.
Also, the Obama administration challenged the bill for undermining reforms needed to curb the NFIP's ballooning deficit, which has continued to expand after damage payouts following hurricanes Katrina, Irene, Isaac and Sandy. But the administration has not threatened a veto, according to the New York Times.
Standard homeowners insurance doesn't cover flood damage. You need separate insurance for that, provided by the NFIP, or purchased through private insurance companies.
Supporters of the bill said the dramatic premium increases could force many people to give up their homes. They add that small businesses, which also buy flood coverage through the NFIP, might fail if pushed to shoulder the added costs. Property values could fall and the already tepid economy might be weakened.
But critics of the Flood Insurance Affordability Act echo the administration in its call for serious reform, pointing out that the NFIP has required numerous taxpayer bailouts during the years following Hurricane Katrina.
They argue that the financial risk of insuring flood-prone property should be with the private market, not the government. Also, opponents contend it's not fair for taxpayers to subsidize any liabilities taken on by someone who decides to buy or build in a high-risk area like a prime seafront.
Under the bill, property owners would get a four-year respite on the rate hikes that are supposed to be phased in under new and updated government flood maps prepared by the Federal Emergency Management Agency. The maps would be refined and reform given further scrutiny during that time.
It would also let homeowners pass below-cost policies to people who buy their property. Also, anyone who faces immediate premium hikes after recently purchasing a home would have those increases rolled back.
Even Rep. Maxine Waters, D-Calif., one of the authors of Biggert-Waters, said she endorses a pullback of her original measure; Waters said she never anticipated the size of the premium increases that would follow.
The Senate vote is a "huge step toward providing much needed relief for our nation's homeowners," she said in a written statement. "I believe the House should act immediately to ensure this bipartisan legislation is enacted into law."
Sen. Mary Landrieu, D-La., added that the rate jumps have been "clobbering" middle-class homeowners in her state and elsewhere. Both Landrieu and Sen. David Vitter, R-La., applauded the bill's passage.
"Folks in Louisiana know all too well the necessity of flood insurance," Vitter said in a written statement. "But I've heard from countless families that if flood insurance spikes weren't stopped, they'd lose their homes -- their slice of the American dream. Unsustainable rate increases are just out of the question for millions of homeowners."
Among the reform law's changes, owners of frequently flooded property, second homes and businesses in flood areas would gradually lose their NFIP subsidies and pay 25 percent more a year until they reach a rate that is considered actuarially sound.
Others can keep the subsidies but can't pass them on when selling their homes. And those who bought homes after July 2012 (when the legislation passed) are subject to immediate jumps to actuarially sound premiums.
The law also phases out below-market rates for owners of grandfathered properties; those that were built in compliance with earlier flood risk estimates but whose risks have increased under new FEMA mapping. Homeowners in this category would have their flood risks re-estimated, which would bring higher insurance premiums over five years.
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