The House Passes the Homeowner Flood Insurance Affordability Act

Many homeowners in Florida and other flood-prone areas were faced with an ever increasing sense of dread late last year. This was the fear of huge flood insurance premium hikes as a result of the Biggert-Waters Flood Insurance Reform Act. Some homeowners in high risk areas were facing a potential 25 percent bump in their annual insurance premiums with these changes in effect.

This week, the U.S. House of Representatives passed new legislation that will spare many Florida homeowners the brunt of these steep insurance premium hikes. The Homeowner Flood Insurance Affordability Act will roll back certain reforms to the National Flood Insurance Program (NFIP) that had been approved in the Congress only two years earlier.

There was some opposition to this legislation on the basis that it represents a step back from making the cost of flood insurance correlate with the risk of flood damage. At this time, the National Flood Insurance Program is running a deficit of about $24 billion.

Flood Insurance Reform’s Impact on the Florida Housing Market

This was the driving force behind the creation of the Biggert-Waters Flood Insurance Reform Act of 2012. Unfortunately, politicians did not predict the full impact it would have on flood insurance premiums for homeowners in these federally mandated flood zones around the country. These rate hikes posed a significant threat to the Florida housing market that’s still in a period of tentative recovery.

It didn’t take long for the members of Congress to start feeling some serious pressure to repeal this legislation from several groups, such as:

• Homeowner Associations
• The Housing Industry
• Banking Institutions

(Florida regulators even attempted to get private companies to write flood insurance in the state–instead of having to use the federal program.)

Reasoning Behind the Homeowner Flood Insurance Affordability Act

The primary argument was that sending flood insurance rates soaring would effectively derail the housing market in states like Florida and Louisiana. An extra $10,000 per year in flood insurance would have been more than enough to send potential home buyers running for the hills, leading to reduced property values and increasingly desperate sellers.

“If no corrective action is taken, flood insurance rate increases will simply be unaffordable for many middle-class homeowners. Home values will be destroyed and the housing market recovery could be abruptly reversed. Mortgage collateral will be undermined and bank capital eroded, which will depress new lending,” explained Camden Fine, president of the Independent Community Bankers of America. “Property tax revenues that local governments rely upon to fund schools and other essential services will be sharply curtailed. The impact of rate increases will be seen not only in coastal communities but in any community located near a river.”

It was arguments like this that lead many Representatives to change their minds about the 2012 law.

“Without reforms, property owners will not only face outrageous premium hikes, but an already fragile housing market would be further threatened – an unacceptable outcome in these difficult economic times,” said Rep. Ander Crenshaw, R-Fla.

The Homeowner Flood Insurance Affordability Act limits the flood insurance premium hikes through several provisions, including:

• Refunds for various homeowners
• Clear caps on annual rate hikes
• Restored grandfather premiums for homes in areas that are now considered to be at greater risk

The House Reform Met with Some Opposition

According to the Heritage Foundation, only an insignificant proportion of property owners in these flood zones will be dealt unaffordable flood insurance premiums. They argue that this could be dealt with efficiently by Congress without taking a step away from risk-based rates.

“To abandon reforms means saddling taxpayers with the cost of insurance for private development,” explained Diane Katz, a research fellow at the Heritage Foundation. “Maintaining the subsidies would also prevent private insurers from freeing property owners who are currently captive to the government’s flood insurance monopoly.”

The senior climate economist for the Union of Concerned Scientists, Rachel Cletus, also had certain reservations about the new House bill. “The growing risk of flooding from sea level rise and storm surge. This measure sends the wrong signal that we can continue to build and rebuild along our coasts just as we’ve done in the past, and that will come back to haunt us,” she warns.