Legislators seek to lessen flood insurance cost impacts

Flood insurance rates for residents in many municipalities are increasing dramatically as a result of a federal flood insurance reform bill enacted last year, and the Massachusetts congressional delegation and state leaders are exploring ways to minimize the financial impacts on property owners.

The National Flood Insurance Program, created in 1968 to cover flood damage at a time when most homeowner insurance policies did not provide such coverage, is undergoing phased-in changes mandated by law to promote the fiscal sustainability of the program.

The program has been based on community adoption of minimum standards for new construction designed to minimize potential flood damage in the future.

Owners of pre-existing structures have been able to obtain flood insurance through the program at a subsidized rate. Further, buildings that were constructed in compliance with existing community standards have received discounted flood insurance rates even if the risk of flooding has subsequently been revised.

Last year’s Biggert-Waters Flood Insurance Reform Act made a number of changes to the way the National Flood Insurance Program is run, with the objective of making the program more sustainable for the long-term. As a result, many flood insurance rates are being adjusted to reflect true risk.

Changes mandated by the law began to be phased in on Jan. 1, and the phase-in will continue over the next several years.

The 20 percent of national flood insurance policies that receive subsidies are the ones affected by the changes mandated by the law.

Subsidies on policies for secondary residences in “special flood hazard areas” are being phased out, with rates increasing by 25 percent annually until they reflect true risk. These rate increases began on Jan. 1.

Subsidized polices on properties that have experienced repeated or severe flooding will see a 25 percent annual rate increase until the rate reflects true risk, as will non-residential properties in a special flood hazard area. These rate increases began on Oct. 1.

Primary residences in special flood hazard areas will keep their subsidized rates until the property is sold, the policy lapses, the property experiences severe repeated flood losses, or a new policy is purchased.

In addition to changing rates under the National Flood Insurance Program, Biggert-Waters also required the Federal Emergency Management Agency to redraw national flood maps, a process that is underway. Numerous properties that had not previously been in high-risk areas now are under the redrawn maps.

Beginning next year, grandfathered rates will be phased out for most properties when a municipality adopts a new Flood Insurance Rate Map. New rates for those properties in the municipality will increase by 20 percent annually for five years.

In a Sept. 26 letter to congressional leadership, the Massachusetts delegation asked that the fiscal 2014 federal budget include adequate funding for the National Academy of Sciences to complete an affordability study mandated by the Biggert-Waters law.

“While we support the overall goals of this legislation, we are concerned that if it is fully implemented absent additional measures, some residents and small businesses located in Massachusetts may be faced with economically devastating impacts,” the lawmakers wrote. “Reports from residents and businesses in Massachusetts have described the potential for dramatic and completely unaffordable flood insurance premium increases as [the Federal Emergency Management Agency] has moved forward to implement the law.”

The delegation asked that additional steps be taken, including a legislative remedy for any affordability challenges that flood insurance premium increases might pose to home and business owners; flood maps that are accurate and reflect the input of affected communities; and improved outreach by FEMA to affected communities regarding their status under any new flood maps that are developed, including the opportunity for residents to dispute any changes.

At the state level, House Speaker Robert DeLeo of Winthrop and Attorney General Martha Coakley introduced legislation on Oct. 16 that would limit the amount of insurance that property owners are required to purchase. The legislation would prohibit creditors from requiring homeowners to purchase flood insurance in an amount that exceeds the outstanding balance of their mortgage, requires coverage for contents, or includes a deductible of less than $5,000.

“These new flood insurance changes are going to devastate many families and businesses in our coastal communities,” Coakley said in a statement. “We continue to urge the federal government to delay implementing these changes until they’ve followed all the steps required by law. In the meantime, this state legislation can help mitigate the impact of these costs on families and businesses.

For more information about the impact of the Biggert-Waters law on property owners, visit www.fema.gov/flood-insurance-reform-act-2012.