Property owners in newly-designated flood plains, as defined by the federal Biggert-Waters Flood Insurance Reform Act of 2012, have been experiencing sticker shock on their FEMA-sponsored flood-insurance premiums.
Biggert-Waters is a classic case of Congress passing legislation without regard to – shall we say – downstream effects. Its intent was to address the steep deficit of the FEMA flood plain program, which is $24 billion in the red after a series of natural disasters, including hurricanes Katrina and Sandy, and tropical storm Irene. The federal program, which covers 5.5 million property owners across the country, had been offering insurance at half the actuarial rate, and had been offering cut-rate prices on a fifth of its policies. Biggert-Waters pushed for rates more in line with what private insurers were offering, phasing in higher premiums mostly for second homes and for properties sold after passage of the act. It also called for redrawing flood plain maps to include many more properties than before.
The new premiums and new flood maps have fed into a rising national antipathy against taxpayer funding of the rebuilding of private property in flood plains after natural disasters, particularly along the nation’s coast. Advocates for actuarial parity say that the real estate industry has been profiting from higher prices for coastal property for more than a century and now it’s time to face the music.
Tell that to the flood-plain property owners whose lenders require flood insurance as a condition of the mortgage. If they decide to sell, the added cost of higher premiums threatens to price out many would-be buyers. Lawmakers here in Massachusetts have become apprised of the potential for economic disruption.
Massachusetts Attorney General Martha Coakley, warning of the threat of another wave of foreclosures and business failures as a result of sharp premium increases, has proposed and filed a state bill, titled An Act Relative to Flood Insurance, co-sponsored by several state lawmakers. It prohibits creditors from requiring homeowners to purchase flood insurance in an amount that exceeds the outstanding balance of their mortgage, or that requires coverage for contents, or includes a deductible of less than $5,000. Creditors would be required to provide a notice to homeowners that the insurance coverage will only protect the mortgage, and may not be sufficient to pay for flood-related repairs or property loss. So it’s not a free lunch.
In February, FEMA announced the postponement of higher flood insurance premiums until at least October 2015 and there’s a push in Congress to repeal Biggert-Waters altogether. At our local level, implementation of the new flood maps for Plymouth County will be delayed until 2015 to gain time to address appeals from property owners in the floodplain communities.
Property owners in floodplains will appeal to their lawmakers that they’re the equivalent of an endangered species. They’ll be up against their neighbors in the flood-safe highlands (and their lawmakers), among whom schadenfreude will be the order of the day. Congress’ move to cap increase will not alleviate the FEMA deficit or make it any less expensive to rebuild. We may see a pragmatic shift in attitudes toward living near the water. n
