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Menendez-Grimm: Out with the bad insurance law, in with the good

Fri Mar 21st, 2014 on     Insurance Law,    

News sources are saying that President Obama is “set to sign” the flood insurance bill we discussed in our last post. There were whispers of a veto earlier this year because the White House had some qualms about the bill (see our Jan. 31, 2014, post). A report from the Office of Management and Budget had questioned the fiscal wisdom of rolling back the planned rate increases from the Biggert-Waters Flood Insurance Reform Act of 2012. If rates did not increase, the National Flood Insurance Program would continue to operate with a significant deficit, the OMB said.

While earlier versions may have skirted the issue, the bill passed by Congress, the Menendez-Grimm Homeowner Flood Insurance Affordability Act of 2013, does address the deficit by establishing a system of annual reserve fund assessments — $25 a year for primary residences and $250 a year for businesses and vacation homes.

Rather than imposing a multi-year moratorium on all rate increases, the new law will limit annual increases, a familiar approach for policyholders of Florida’s state-backed Citizens Property Insurance Corp. For NFIP, the rates for a class of properties will not go up more than 15 percent a year; rates for individual policies will be limited to 18 percent increases annually.

Mendendez-Grimm also repeals the very unpopular property sales “trigger.” Introduced under Biggert-Waters, the trigger would have required a homebuyer to pay the “rack rate” under the new flood maps, rather than the lower rate — lower because of subsidies or credits — the current owners paid. Buyers were scared off, sellers could not sell and property values plummeted under the trigger.

Biggert-Waters also required property owners to pay the full rate, again under the new flood maps, if they chose to purchase a new policy. Again, the idea was to move all policyholders into an actuarially-sound rate system. Had the rate increases not been astronomical, this trigger may have stayed in place. As it was, though, the provision did not make sense, so Menendez-Grimm does away with it.

As they say on television, but wait! There’s more! We’ll continue the rundown in our next post.

Source: Carrier Management, “Senate OKs Bill to Curb Flood Insurance Hikes,” Andrew Simpson, March 14, 2014 

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