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Flood Insurance Reform Update

In January 2014, the spending bill known as the Omnibus Appropriations Package, H.R. 3547, was passed. The spending bill provides short-term rate increase relief to some homeowners covered by the National Flood Insurance Program (NFIP), delaying scheduled premium increases until Oct. 1, 2014. This delay does not impact business property owners, individuals with second homes (with respect to those homes) or people with frequently flooded properties.

BACKGROUND
In 1968, Congress created the NFIP to enable property owners to obtain flood insurance. The NFIP offers flood insurance to homeowners, renters and business owners if their community participates in the NFIP. Participating communities agree to adopt and enforce ordinances that meet or exceed the Federal Emergency Management Agency (FEMA) requirements to reduce the risk of flooding.
In 2012, the U.S. Congress passed the Biggert Waters Flood Insurance Reform Act of 2012 (The Act). The Act calls on FEMA and other agencies to make a number of changes to the way the NFIP is run.
Two key sections of the Act-205 and 207-require the NFIP to raise rates to reflect true flood risk and to make the program more financially stable. In general, section 205 pertains to formerly subsidized properties that are losing their grandfathered status and other properties facing new rates that have not been re-mapped. Section 207 applies only to those properties currently in the NFIP that are facing new rates because they have been re-mapped. The changes will result in premium rate increases, over a period of time, for some-but not all-policyholders.

PREMIUM RATE INCREASES DELAYED
The new spending bill delays the implementation of Section 207 of the Act. When Congress reauthorized the NFIP in 2012, it also required the phase-out of subsidies on insurance premiums so that policyholders would eventually begin paying actuarially appropriate rates. The spending bill delays the start of the rate increases for properties that have been re-mapped until Oct. 1, 2014.

HOW HOMEOWNERS ARE AFFECTED
The spending bill blocks FEMA from spending any money for the remainder of this fiscal year (through Sept. 30, 2014) to enforce higher premiums under Section 207 of the Act. That means that the existing policyholders who have grandfathered subsidized rates but are now facing premium increases due to remapping will not see increases in premiums until after Sept. 30, 2014.
FEMA estimates that about 20 percent of its 5.5 million policyholders-about 1.1 million-receive subsidies. Under the Act, about 250,000 of them saw immediate increases: business owners, those owning second homes and people with frequently flooded properties. The spending bill does not delay increases for these policyholders.

An additional 578,000 policyholders living in hazardous areas will retain their subsidies until they sell their homes or suffer severe, repeated flood losses. The spending bill does not change this provision.

For questions or more information regarding Flood Insurance or the Flood Insurance Reform Act,
Contact your McSweeney & Ricci Account Manager today.

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