New federal law offers some relief from flood insurance spikes

President Barack Obama last Friday signed legislation that offers some relief to homeowners and businesses facing sharp increases in flood insurance premiums mandated by the Biggert-Waters Act of 2012.

The legislation holds premium increases for homeowners to an average of 15 percent per year and provides that no individual policyholder will pay a premium increase of more than 18 percent per year.

The bill reinstates the flood insurance program’s grandfathering provision – meaning that homes that complied with previous federal flood maps will not face large increases when new maps, showing larger flood risks, are implemented by the Federal Emergency Management Agency.

To help pay for the changes made to the Biggert-Waters law, which created new flood plain maps and increased the number of property owners required to purchase flood insurance, the new law authorizes a $25 surcharge on residential policies and a $250 surcharge on premiums for non-residential properties.

In addition, the legislation:

• Repeals certain rate increase “triggers,” ensuring that no policyholder will experience dramatic rate increases from the sale of a home or a lapse in policy

• Refunds excess premium charges to those who have already paid them

• Provides FEMA with funding to complete the affordability study mandated in the Biggert-Waters Act and requires FEMA to share the study, along with an affordability framework, with Congress

• Sets affordability goals for FEMA, instructing the agency to minimize the number of policies with annual premiums that exceed 1 percent of the total coverage provided by the policy

• Requires FEMA to extend premium rate protection to all properties newly mapped into a special flood hazard area for the first year

• Requires FEMA to open a 30-day comment period to ensure that the best available scientific data is used to determine the new flood maps in advance of the 90-day comment and appeals period for new maps

• Requires FEMA to monitor and report on affordability for small businesses, nonprofits, houses of worship, and residences with less than 25 percent area median home value

If FEMA finds detrimental effects on affordability, it must provide Congress recommendations to address these effects.

U.S. Sens. Elizabeth Warren and Edward Markey and the entire Massachusetts congressional delegation were key leaders in enacting this new law.

Earlier in the month, FEMA rejected a request from the state’s congressional delegation to revisit the newly redrawn Massachusetts flood plain maps, which were based on scientific modeling specific to the Pacific coast. While the town of Rockport successfully appealed its new FEMA maps on the basis of faulty science, other municipalities must still file individual appeals or the new maps will take effect as previously scheduled. Earlier this year, FEMA announced a delay in the implementation of Plymouth County’s maps for at least a year while it examines appeals from Marshfield and Scituate. But new maps for other counties are scheduled to take effect in June.

At the state level, a bill co-sponsored by House Speaker Robert DeLeo and Attorney General Martha Coakley (H. 3783) moved swiftly through the House and was sent to the Senate for its consideration. The bill would prohibit any creditor from requiring a homeowner to purchase flood insurance on the home in an amount that exceeds the value of the mortgage. It would also prohibit a creditor from requiring flood insurance on the contents of a home or from requiring the purchase of a policy with a deductible below $5,000.

There are 24,476 flood insurance policyholders in Massachusetts, according to an Associated Press analysis of FEMA data, with 17,092 homeowners facing annual premium increases of up to 18 percent. The remaining 7,384 commercial policyholders face annual premium increases of 25 percent until their premiums more accurately reflect the true risk of property flooding as determined by FEMA.