By
on March 25, 2014
WASHINGTON -- FEMA Administrator Craig Fugate told House members Tuesday that his agency doesn't yet have a timeline to implement the new flood insurance law that averts major increases in premiums resulting from a 2012 law.
President Barack Obama signed the bill into law on Friday. It was backed by the entire Louisiana delegation and passed by large margins in the House and Senate.
The vast majority of Louisiana residents facing the biggest hikes in premiums as a result of the 2012 Biggert-Waters law were in the so-called grandfathered category. The grandfathered category was eliminated by Biggert-Waters, but reinstated in the bill just signed by the president.
Grandfathered policyholders are people who built to code when they first moved into their homes, but were designated at greater risk under new FEMA flood maps. Under Biggert-Waters, they faced rate increases, some quite substantial, phased in over five years.
The rate increases resulting from the elimination of grandfathering in Biggert-Waters wasn't scheduled to take effect until next spring, as a result of a delaying bill passed last year as part of an omnibus spending bill.
So FEMA really does not have to do anything to implement the reinstatement of grandfathering for the flood insurance program, according to sponsors of the legislation.
Grandfathered policyholders represent at least three quarters of those facing big increase under Biggert-Waters in Louisiana, according to estimates by Louisiana congressional delegation members and metro New Orleans parish leaders.
Fugate said a top priority for FEMA is working out refunds for people who purchased homes in high flood risk communities after Biggert-Waters became law in July 2012. They were subject to immediate increases to actuarial levels, and some were huge: double, triple, even 10 times previous rates.
Under the new law, these increases are required to be refunded.
Fugate said he doesn't yet know how long it will take to implement the refunds.
FEMA is also working on one question not spelled out in the newly signed Flood Insurance Homeowner Affordability Act. It's clear the higher premiums must be refunded, but not specified whether the higher insurance agent commissions paid out as a result of those increased premiums (agents are paid a percentage of the total premiums) should also be refunded, Fugate said.
The law pays for the changes largely with a $25 fee for all policyholders, and a $250 fee for owners of second homes and businesses. Fugate said he's also working on imposing those fees, though he thought it would take some months to impose them.
During a House hearing Tuesday, Rep. Steven Palazzo, R-Miss., reminded Fugate that one year ago he told senators that he had no authority to block unaffordable rate increases under Biggert-Waters.
"And we responded and we did: in a bipartisan and bicameral way," Palazzo said. "Just this past Friday, the president signed into law the Homeowner Flood Insurance Affordability Act.
The key word is affordability, and we think that we have given that to you."
Palazzo also questioned how members of Congress could expedite the process, stating: "I just want to continue to urge you to act swiftly on this."
Fugate said Congress should tell insurance agents and mortgage brokers in their districts that the new legislation means rates don't immediately rise to actuarial levels when a home is sold.
"I think probably it is important to educate them that these new grandfathered rates are transferable; because it's going to take time to get that out there to every agent and get that into the system," Fugate said.
Among other things, the legislation will require FEMA to draw up new rate sheets for hundreds of thousands of policyholders. The law limits increases to an average of 15 percent for the FEMA's nine rate classifications, and limits individual rate increase to no more than 18 percent.
Fugate said the new rates would take effect during the annual renewal process.
Michael Hecht, president and CEO of Greater New Orleans Inc., and leader of a 32-state coalition that fought to avert the large increases under Biggert-Waters, encouraged FEMA to take some steps quickly: Do a better job of enforcing the mandatory flood insurance requirement for homes financed with federally backed mortgages in flood-prone communities to make the program more solvent, compile a list of homes that surpass the goal established in the legislation that premiums be kept at no more than 1 percent of the total coverage; and that FEMA complete a detailed rate structure for agents and banks so people have good information.
FEMA is also required to let policyholders know about the risk of flooding for their homes, whether or not that risk results in higher premiums.
Rep. Bill Cassidy, R-Baton Rouge, one of the sponsors of the flood insurance bill, said FEMA must complete a series of rules to implement the new legislation.
"There will be a rulemaking process associated with this law," Cassidy said. "For example, rules must be developed for people who own 'pre-FIRM homes' that overpaid their premium.
That said, we worked with FEMA as we wrote the Grimm-Cassidy Amendment so that FEMA would understand the intent of the law and would implement the Grimm-Cassidy amendment as intended."
"As with any federal agency, oversight is needed to make sure the law is properly implemented. I am committed to this oversight."
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