We have a friend who believes that “grandfathering” is the most confusing term used by rulemakers. We suggested she read the tax code for other candidates. The subject came up because we were about to explain more provisions of the Menendez-Grimm Homeowner Flood Insurance Affordability Act of 2013, and grandfathering is front and center.
Again, the law will undo much of what the Biggert-Waters Flood Insurance Reform Act of 2012 did. For example, Biggert-Waters eliminated grandfathering. Grandfathering of what, though?
One of the most contentious issues under Biggert-Waters was the redrawn flood maps. Part of making the National Flood Insurance Program’s rating system actuarially sound depended on redrawing the flood maps, adjusting them according to current risk assessments. Homes along Florida’s coasts, for example, suddenly found themselves in higher-risk areas — so much higher that their premiums skyrocketed.
Enter the grandfather clause. Prior to Biggert-Waters, those homeowners would have been exempt from the new rates. Under Biggert-Waters, grandfathering was out. Homeowners would have to take the new, higher rates, though the rates would be phased in over five years. With the new law, grandfathering is back in.
Another sticking point under Biggert-Waters was the affordability study. The legislation had a timing defect: The study’s due date was after the date that the new flood maps would go into effect. The Federal Emergency Management Agency, which runs NFIP, would be learning from experts what consumers had discovered months before: The rate hikes based on the new maps were outrageous. And, in this case, “outrageous” easily translates into “unaffordable.”
Menendez-Grimm includes an affordability goal by requiring FEMA to reduce, as much as possible, the number of policies rated at one percent of the policy’s coverage. So, if a policyholder has $100,000 in coverage and pays more than one percent — $1,000 — in premiums, FEMA must … well, the next step is a little unclear.
There is much more to the bill, but we won’t drag our discussion of the details out much longer.
Source: Carrier Management, “Senate OKs Bill to Curb Flood Insurance Hikes,” Andrew Simpson, March 14, 2014Share