Homeowners living in flood-prone areas are getting relief from big spikes in insurance costs under legislation President Barack Obama signed into law last Friday.
Lawmakers from both parties supported the measure in response to angry homeowners who faced sharp premium hikes after an overhaul of the government’s flood insurance program two years ago.
Democratic Sen. Robert Menendez of New Jersey said he was hearing from constituents still reeling from Superstorm Sandy, “many who came to me in tears, expressing horror stories of skyrocketing flood insurance premiums that threatened to force them from their homes.”
The 2012 rewrite was aimed at weaning those in flood-prone areas off of subsidized rates and required extensive updating of the flood maps used to set premiums. But its implementation left homeowners along the Atlantic and Gulf coasts and in flood plains facing often unaffordable rate increases.
The new law caps flood insurance premium increases and allows below-market insurance rates to be passed on to people buying homes in flood zones with taxpayer-subsidized policies.
Critics say taxpayers will end up footing the bill when the next disaster strikes instead of homeowners who choose to live in areas susceptible to flooding.
The legislation offers its greatest relief to owners of properties that were originally built to code but subsequently were found to be at greater flood risk. Such “grandfathered” homeowners currently benefit from below-market rates that are subsidized by other policyholders, and the new legislation preserves that status and caps premium increases at 18 percent a year. The 2012 overhaul required premiums to increase to actuarially sound rates over five years and required extensive remapping.
Many homeowners faulted the Federal Emergency Management Agency’s implementation of the 2012 law. In some instances, homeowners from areas that had never been flooded were shocked and frightened by warnings of huge, unaffordable premium increases. The resulting uproar quickly got the attention of lawmakers from both parties.
“Today, draconian flood insurance rate increases have been stopped, and we have returned affordability as a centerpiece of the National Flood Insurance Program,” Sen. Mary Landrieu, D-La., said last Friday in a statement.
Another provision, eagerly sought by the real estate industry, allows sellers of older homes built before original flood insurance risk maps were drafted to pass taxpayer-subsidized policies on to the people buying their homes instead of requiring purchasers to pay actuarially sound rates immediately, as required by the 2012 law.
Those rates had been particularly high in older coastal communities in states like Florida, Massachusetts and New Jersey, and have put a damper on home sales as prospective buyers recoil at the higher, multifold premium increases.
People whose second home is in a flood zone and those whose properties have flooded repeatedly would continue to see their premiums go up by 25 percent a year until reaching a level consistent with their real risk of flooding.
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