The Homeowner Flood Insurance Affordability Act

HFIAA, as its name would suggest, was prompted by concerns over the affordability of National Flood Insurance Program (“NFIP”) policies for consumers. The 2012 Biggert-Waters Act (“BWA”) required that premiums charged under the NFIP move towards “full risk” actuarial rates, which according to critics would make flood insurance unaffordable in some areas, thus adversely affecting the value of homes.

HFIAA addresses these criticisms by:

• Removing the Sale / New Policy Trigger – Allows purchasers to assume the seller’s policy at the current rate (ie policy stays with the property, not the owner).
• Restoring “Grandfathering” – Repeals the BWA provisions eliminating grandfathered rates.
• Limiting Annual Premium Increases – Limits annual increases to 18% until full risk is reached. (Note that limits on annual increases for second homes and businesses built before 1975 remain at 25%).

More positively, HFIAA authorises the Federal Emergency Management Agency (“FEMA”) to “secure reinsurance of coverage provided by the flood insurance program from the private reinsurance and capital markets at rates and on terms determined by FEMA to be reasonable and appropriate, in an amount sufficient to maintain the ability of the program to pay claims.”

These represent the most significant changes made by the HFIAA. Other significant changes include, but are not limited to: allowing for homes newly mapped into special flood hazard areas to be given a preferred rate; establishing a $25 surcharge annually on primary residences / $250 on second residences and business; authorising FEMA to seek private reinsurance; allowing for monthly instalment payments; and allowing for the exclusion of detached structures.