New Federal Flood Law That Seeks to Raise Rates is Flawed

Residents in Coastal states such as Florida that need and want flood insurance are about to get hurt by a new, poorly conceived, federal law known as the Biggert-Waters Flood Insurance Act of 2012. It is a law that will hurt consumers, lenders, the real estate industry, and we suspect, future real estate values. It is also a law whose authors and those who voted for it have come to understand its impact only after they wrote and voted to pass it into law.

We have posted a new newsletter entitled NEW LAW TO RAISE FLOOD INSURANCE RATES DRAMATICALLY about the new law and how it changes flood insurance rates on a range of coastal properties including those that have, for nearly five decades, been subsidized by the National Flood Insurance Program (NFIP), second homes, commercial properties and others. If you carry flood insurance we suggest you read it and/or contact us with your questions.

What’s interesting about this new law are at least two things.

First, the two people who authored the law now feel it should be repealed, revised or postponed. Representative Maxine Waters, (D.-California), who along with Judy Biggert, (R-Illinois) authored the Biggert-Waters Flood Insurance Reform Act, recently released a statement saying that 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.”

Despite a vast majority of both the House and Senate voting for this new law, according to Ms. Waters, “neither Democrats nor Republicans envisioned it would reap the kind of harm and heartache that may result from this law going into effect.” In 2012, the House passed the bipartisan bill 373-52 and sent the measure to the Senate, which passed it, 74-19. President Obama signed sign it into law in July of 2012.

Ms. Biggert is no longer in Congress, having decided not to run for re-election. Ms. Waters, a ranking member of the House Committee on Financial Services, said she is committed to fixing the “unintended consequences” of the law and passing legislation to delay most rate changes for three years “to give FEMA the opportunity to ensure its maps are accurate and allow Congress to make certain rates are affordable.”

The second thing that is sadly interesting is how the rest of the Country views those of us who live near the water and how quickly they forget that we help support (subsidize) their communities. As I mention in the newsletter, a good number of Americans living far away from the coast apparently believe that the government offering subsidized flood insurance for coastal residents is unfair for the rest of the County. Some have even called for the government to get out of the business, such as Michigan Congresswoman Candice Miller, who in 2011 introduced legislation to eliminate the National Flood Insurance Program entirely. Congresswoman Miller stated she felt the NFIP program and its subsidies “would make Bernie Madoff blush.”

What is unfortunate is that Americans, certainly those living in coastal states included, subsidize a number of national insurance programs. There is a federal crime program. The federal terrorism program known as TRIA that was enacted after 911. There is also the Federal Crop Insurance Program that famers all over America use. Each of these, as was the case in 1968 when the NFIP’s flood program was created, were implemented because the private insurance industry could not, or would not, bear the risk from the losses these program cover.

As I wrote in 2007 in an article entitled The Windstorm Solution (click here for a copy), what our country needs is strong leadership to implement a National Catastrophe Plan. In my concept we would, and should, combine the Crime, Terrorism, Crop and Flood programs along with the earthquake needs that our friends on the West Coast have and the many separate state windstorm plans that now populate coastal states from Texas all the way up the East Coast such as Florida’s Citizens Property Insurance Corporation. I can’t, frankly, be convinced that combining all of these Federal and State programs would not better spread the risks all across America, for all of us, as well as lower operating costs by combining perhaps two dozen now separate governmental insurance programs and thus lower rates. It is illogical to think that a single, national program for all such catastrophic type risks would not be less costly than the separate programs that are now in place.

Of course, there have been some frustratingly futile attempts at a national program of one sort of another over the years. Most recently such attempts were focused on windstorm and the fact that nearly ½ of the country lives a short distance from the (a) coast. We Americans like living near the water and that’s not likely to slow anytime. Sadly, when those windstorm attempts took place, elected officials in non-coastal states were against helping and were often heard saying, “they did not want to subsidize the millionaires living on the water in places like Florida.” That thinking needs to change and just as coastal residents, including most who are not ‘millionaires’, subsidize a range of programs and other states, so too, should we all work together to address each of these risks, all over America.

Of course, just as this ill-conceived Biggert-Waters Flood Insurance Act required those who voted for it, much less those who authored it, to understand it before making it law; a National Cat Plan would require intelligent leadership. Here’s to hoping that the folks in Washington will repeal or dramatically modify the Biggert-Waters law (and soon), as well as consider a more fair, long term solution to the risk of rising flood waters and other catastrophic perils.

Here’s to also hoping that you and your family had a lovely Thanksgiving. From all of us here at Morris & Reynolds thank you for the honor of providing your protection.

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