The U.S. House of Representatives passed a bill Tuesday, 306-91, that would cut back on the dramatic increases to the cost of flood insurance mandated by a 2012 reform act.
The measure would permit sellers to give subsidized insurance rates to new buyers, and it would cap premium increases at 15 to 18 percent annually.
The Senate — which had passed a similar bill last month — still must approve the new measure before it can become effective.
For Ocean City — where $11.2 billion worth of real estate is crammed onto the 11 square miles of a small barrier island — the flood-insurance reforms have widespread impact on the local economy. Property owners face potentially crippling premiums on flood insurance — particularly for homes built below new recommended elevations.
The increases stem from the 2012 Biggert-Waters Flood Insurance Reform Law, designed to end taxpayer subsidies of the National Flood Insurance Program, which is now $24 billion in debt. The existing law enacts premium hikes of as much as 25 percent per year until full-risk coverage is achieved. Under the existing law, buyers are required to assume full-risk rates when they purchase a home.
The House bill moderates many of the Biggert-Waters reforms.
“Any positive news regarding flood insurance is always welcome,” said Ken Sedberry, president of the Ocean City Board of Realtors. “We hope politicians continue to take a common-sense approach.”
But Sedberry said he’s reluctant to speculate too much until a final bill is voted on.
The Senate bill passed last month had called for delaying many of the Biggert-Waters reforms by four years or more. Tom Heist, president of Thomas H. Heist Insurance Agency of Ocean City, said the immediacy of the House bill is a benefit.
“It provides certainty for individuals, which is good for our real estate market,” Heist said. “Instead of pushing it off down the road four or five years.”
Bill McMahon, president of Ocean City’s McMahon Insurance Agency, noted two key elements in the new bill, including:
- Premium increases between 5 percent and 18 percent until full-risk coverage is reached.
- A new assessment of $25 per year on primary residence policies and $250 per year on business and non-primary residence policies. (A measure that could represent a significant increase to some second homeowners.)
A news release from Republican U.S. Rep. Frank LoBiondo outlined the following provisions. The House bill:
- Permanently removes the home sale/new policy rate increase trigger for primary residences, ensuring the person buying the home is treated the same as the person selling it. Removal of these provisions would restore certainty to the real estate markets in communities across the country;
- Reinstates grandfathered rates by decoupling rate increases with FEMA remapping. Removal of this provision ensures that policyholders are not penalized who built to code and built to standards of existing Flood Insurance Rate Maps;
- Provides a refund for the people who purchased a Pre-FIRM subsidized home without the full transparency from FEMA on the new BW-12 rate structure, which wasn’t made public for a year after BW-12 was signed into law;
- Provides home improvement protection by returning the “substantial improvement threshold” (i.e. renovations and remodeling) to the historic 50% of a structure’s fair market value level and ensures that necessary renovations can continue without penalizing homeowners with excessive flood insurance rate hikes and costly mitigation; and,
- Includes generally accepted affordability measures such as: high deductible options, flood-proofed basement exemptions, map certification, flood protection funding recognition, optional monthly installment plans, exceptions on escrow requirements, removing the funding cap on the affordability study, etc.
“The House acted tonight to remove a major financial hurdle to the tens of thousands of homeowners still rebuilding 18 months after Sandy came ashore,” LoBiondo said. “By no means is this legislation all that I have advocated for, however it does represent a fair and workable compromise to assist many South Jersey residents while ensuring the long-term solvency of the NFIP.”
