WASHINGTON, DC—Congressman Jim Himes (CT-4) today applauded passage of flood insurance legislation that will slow premium increases for federal flood insurance.
“With so many people still recovering from Superstorm Sandy, they can’t afford the double blow that a drastic premium increase will cause in addition to the expenses of rebuilding,” Himes said. “Over time, we need to ensure this program pays for itself and that we don’t subsidize people who choose to build in unsafe places, but the process needs to be fair to all homeowners, especially those whose flood plain designation changes after they own their home. This bill is a good step in that direction.”
The Homeowner Flood Insurance Affordability Act passed Congress today with overwhelming bipartisan support. The legislation limits any annual premium increase to 18%, allows individuals purchasing covered homes to also assume the subsidized flood insurance (rather than immediately pay full, actuarially sound rates) and restores “grandfathered” properties under prior law so that owners would pay rates applicable to the original flood risk zone, rather than updated risks.
To offset the cost of these changes, annual surcharges would be imposed on all policies: $25 a year for primary residences and $250 a year for second homes, businesses and other non-residential properties. The bill responds to the sharp increases in premiums triggered by the 2012 law, which have been unaffordable for many homeowners and made it difficult to sell homes.
In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act, which modified the federal flood insurance program to phase out subsidized premiums and require that all premiums be actuarially sound and reflect the actual flood risk for a property.
Before passage of Biggert-Waters, the NFIP was not designed to ensure that its premiums will cover the average claims and expenses expected over the long run. Many NFIP policyholders receive insurance at rates that are subsidized. Such subsidies were mainly granted to property owners whose properties were built before their communities joined the program, and they were intended to encourage communities to participate in the program and thus mitigate potential losses by adopting FEMA's flood-plain management requirements.
Until hurricanes Katrina, Rita and Wilma hit in 2005, the NFIP was solvent; however, those events forced the program to borrow $19 billion from the Treasury to cover flood insurance claims. Hurricanes Ike in 2008 and Irene in 2011 only made matters worse, and once the claims from Superstorm Sandy that hit in 2012 are paid, the program could be more than $30 billion in debt.