Everyone seems to agree the brakes need to be applied to...Biggert-Waters

Our View: Even keel

October 02, 2013 12:00 AM

Everyone seems to agree the brakes need to be applied to the Biggert-Waters Flood Insurance Reform Act of 2012.

Even U.S. Rep. Maxine Waters, whose name adorns the bill, says she is "outraged by the increased costs of flood insurance premiums that have resulted from the Biggert-Waters Act. I certainly did not intend for these types of outrageous premiums to occur for any homeowner."

Annual premium increases for coastal second homes and businesses reflect insurance companies' attempt to recognize rising risk associated with rising sea levels.

Unfortunately, the attempt has resulted in annual premium increases of many tens of thousands of dollars for many of those affected by redrawing of flood-zone maps and recalculation of risk.

The effect as things stand will be to make second-home properties available only to very wealthy people. Primary-residence properties will be grandfathered — until they're sold, at which point, families without the financial means can find themselves priced out of a family home, not by the market, but by the insurance.

The National Flood Insurance Program, which is administered by the Federal Emergency Management Agency, was instituted to protect homeowners whose banks required protection for their interest in the homes, but whose insurers refused coverage. A new actuarial calculus has now emerged with what Rep. Waters called "outrageous premiums."

There is obvious room for improvement.

For example, coverage requirements could be limited to a mortgage-holder's interest, so that a homeowner with $300,000 of equity in a $500,000 house has the requirement to insure the $200,000 owed to the bank, and the option to insure beyond that.

Also, insurance companies have determined what their risk is, but it has been done in a "black box," that is, there has been no confirmation that the calculus is fair, reasonable or comprehensive. The Massachusetts Attorney General's Office is working with the state divisions of Banking and Insurance to consider legislation that would bolster efforts to assure fairness, and is offering to provide communities with resources to appeal federal determinations.

Attorney General Martha Coakley said the federal act requires affordability and peer reviews, which seem to be missing from premium increases of $65,000 per year, as reported Tuesday.

At the very least, we need to see the process come to a halt so we can get a look inside that "black box."

The risk of flood has risen for coastal communities, mostly as a result of warming temperatures and rising sea levels. Bearing the cost of that higher risk is reasonable, but there must be assurances that the cost itself is, too.