Five federal regulatory agencies are considering a rule that could boost sales of private flood insurance. The proposal would require lenders to accept private flood policies to satisfy the mandate that certain homebuyers in flood hazard areas purchase flood insurance.

The rule is intended to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012, which reformed the National Flood Insurance Program, relating to private flood insurance, the escrow of flood insurance payments, and the forced-placement of flood insurance.

The proposal would require that regulated lending institutions accept private flood insurance as defined in Biggert-Waters to satisfy the mandatory purchase requirements. In addition, the proposal would require regulated lending institutions to escrow payments and fees for flood insurance for any new or outstanding loans secured by residential improved real estate or a mobile home, not including business, agricultural and commercial loans, unless the institutions qualify for the statutory exception.

The proposal includes new and revised sample notice forms and clauses concerning the availability of private flood insurance coverage and the escrow requirement.

Also, the proposal would clarify that regulated lending institutions have the authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date on which the borrower’s coverage lapsed or became insufficient and would stipulate the circumstances under which a lender must terminate force-placed flood insurance coverage and refund payments to a borrower.

The proposed rule is being issued by the Board of Governors of the Federal Reserve System, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency.

The five federal agencies are soliciting comments on the proposal and on whether the agencies should adopt additional regulations on the acceptance of flood insurance policies issued by private insurers. The public has until Dec. 10, 2013, to comment.

Florida-based Wright Flood provides federal flood insurance and also excess flood coverage. Neal Conolly, president and CEO, welcomes the focus on private insurance but said the impact on the private market is difficult to assess right now.

“We favor every initiative that increases awareness of the need for flood insurance, and permitting private flood insurance for mortgaged property should do so,” Conolly told Insurance Journal. “We don’ t have a projection on what the acceptance of private alternatives will be.”

By Gary Fineout | October 2, 2013

By Andrew Simpson, 09/23/2013

Pressure continues to build in Congress to delay implementation of flood insurance reforms that are raising premiums for thousands of property owners across the country.

But the man in charge of administering the program says he does not have the authority to delay implementation of the law or halt premium increases.

Craig Fugate, director of the Federal Emergency Management Agency (FEMA), told a Senate subcommittee last week that he and his lawyers believe that the Biggert-Waters flood insurance reform act passed last year gives him no leeway or authority to postpone the changes because they may be unaffordable for some.

“I need help. I have not found a way to delay…without some additional legislative support. There is no provision for affordability in this law,” he told members of the economic policy subcommittee of the Senate Committee on Banking, Housing and Urban Affairs, a number of whom urged him to take administrative action to delay reforms.

If the Obama administration can delay parts of Affordable Care Act, then it can delay parts of Biggert-Waters because “it is clearly not ready for prime time,” said Sen. David Vitter, (R-La.), a leader in the effort to block the rate hikes.

Vitter and several other senators suggested that since FEMA failed to complete a report on affordability that was required under the law and supposed to be ready in April, then FEMA should delay other parts of the law as well.

Sen. Mary Landrieu, (D-La.), said FEMA does not have the data it needs to accurately price some of the risks it is supposed to under the law.

“You do not have the data to implement the law,” she said.

The Biggert-Waters act attempts to shore up the National Flood Insurance Program (NFIP) by moving it towards risk-based pricing. It eliminates premium subsidies for repetitive loss properties, property owners who do not take steps to mitigate, secondary homes and certain properties that have been protected from risk-based rates by grandfathering.

The NFIP collects more than $3.5 billion in annual premium revenue, and FEMA estimates that an additional $1.5 billion annually is needed from subsidized policyholders for it to get financially even.

FEMA estimates that about 20 percent of its 5.5 million policyholders — about 1.1 million — receive subsidies. Under Biggert-Waters, about 250,000 of them will see immediate increases: business owners, those owning second homes and people with frequently flooded properties, according to FEMA.

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 same is true for people in condominiums.

NFIP began implementing higher rates for second homes in January. In October, rates on businesses in flood zones and homes that have been severely or repeatedly flooded will start going up 25 percent a year until the rates reach actuarial indications.

Most of the senators at the hearing said they agreed with the goal of Biggert-Waters of making the NFIP self-sufficient but said they did not expect the increases would be so dramatic or come so suddenly.

Senators aired complaints from constituents who have found themselves placed in flood zones for the first time ever based on new flood maps by FEMA —and having to pay thousands of dollars in premiums for flood insurance as required by their mortgage holders.

Sen. Elizabeth Warren, (D-Mass.), said that “over time it makes sense to move towards risk based rating” but said that flood maps need to be accurate. Warren cited homeowners in the town of Brockton who said their homes are suddenly in a flood zone and they must buy insurance even though the area has never flooded in 300 years.

Fugate said the flood maps display the risk, which is not the same as the history. “I have been in many places that have never flooded before it’s declared a disaster,” said Fugate.

In response to the uproar by constituents, Democrats and GOP conservatives in the House teamed up on a 281-146 vote in June to delay some of the premium increases for a year.

Landrieu has sponsored a similar measure that passed the Senate Appropriations Committee in July but has not yet been voted on by the full Senate.

Most of the increases are being phased in over five years.

“Each property’s risk is different. Some policyholders may reach their true risk rate after less than five years of increases, while other policyholder increases may go beyond five years to get to the full risk rate required by the new law,” Fugate said.

Vitter questioned the need for payments to private insurers and agents in an amount that equals 30 percent of the premium—without them assuming any of the risk. “To this pro-business Republican, that seems absurd,” he said.

Fugate defended the agent and insurer payments, saying flood policies are not easy policies to write or service and special training is required. He did, however, say FEMA was looking into whether the percentage might be reduced for larger premiums.

Vitter said that the flood insurance is not just a Louisiana issue, although his state may be first to be experiencing the higher process. “This is a national issue. This movie is coming to a theater near you,” Vitter said to his those not from his state.

Mississippi Insurance Commissioner Mike Chaney has said he wants to sue the federal government to stop the flood insurance rate hikes but the state’s attorney general has declined to represent him.

Pressure continues to build in Congress to delay implementation of flood insurance reforms that are raising premiums for thousands of property owners across the country.

But the man in charge of administering the program says he does not have the authority to delay implementation of the law or halt premium increases.

Craig Fugate, director of the Federal Emergency Management Agency (FEMA), told a Senate subcommittee last week that he and his lawyers believe that the Biggert-Waters flood insurance reform act passed last year gives him no leeway or authority to postpone the changes because they may be unaffordable for some.

“I need help. I have not found a way to delay…without some additional legislative support. There is no provision for affordability in this law,” he told members of the economic policy subcommittee of the Senate Committee on Banking, Housing and Urban Affairs, a number of whom urged him to take administrative action to delay reforms.

If the Obama administration can delay parts of Affordable Care Act, then it can delay parts of Biggert-Waters because “it is clearly not ready for prime time,” said Sen. David Vitter, (R-La.), a leader in the effort to block the rate hikes.

Vitter and several other senators suggested that since FEMA failed to complete a report on affordability that was required under the law and supposed to be ready in April, then FEMA should delay other parts of the law as well.

Sen. Mary Landrieu, (D-La.), said FEMA does not have the data it needs to accurately price some of the risks it is supposed to under the law.

“You do not have the data to implement the law,” she said.

The Biggert-Waters act attempts to shore up the National Flood Insurance Program (NFIP) by moving it towards risk-based pricing. It eliminates premium subsidies for repetitive loss properties, property owners who do not take steps to mitigate, secondary homes and certain properties that have been protected from risk-based rates by grandfathering.

The NFIP collects more than $3.5 billion in annual premium revenue, and FEMA estimates that an additional $1.5 billion annually is needed from subsidized policyholders for it to get financially even.

FEMA estimates that about 20 percent of its 5.5 million policyholders — about 1.1 million — receive subsidies. Under Biggert-Waters, about 250,000 of them will see immediate increases: business owners, those owning second homes and people with frequently flooded properties, according to FEMA.

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 same is true for people in condominiums.

NFIP began implementing higher rates for second homes in January. In October, rates on businesses in flood zones and homes that have been severely or repeatedly flooded will start going up 25 percent a year until the rates reach actuarial indications.

Most of the senators at the hearing said they agreed with the goal of Biggert-Waters of making the NFIP self-sufficient but said they did not expect the increases would be so dramatic or come so suddenly.

Senators aired complaints from constituents who have found themselves placed in flood zones for the first time ever based on new flood maps by FEMA —and having to pay thousands of dollars in premiums for flood insurance as required by their mortgage holders.

Sen. Elizabeth Warren, (D-Mass.), said that “over time it makes sense to move towards risk based rating” but said that flood maps need to be accurate. Warren cited homeowners in the town of Brockton who said their homes are suddenly in a flood zone and they must buy insurance even though the area has never flooded in 300 years.

Fugate said the flood maps display the risk, which is not the same as the history. “I have been in many places that have never flooded before it’s declared a disaster,” said Fugate.

In response to the uproar by constituents, Democrats and GOP conservatives in the House teamed up on a 281-146 vote in June to delay some of the premium increases for a year.

Landrieu has sponsored a similar measure that passed the Senate Appropriations Committee in July but has not yet been voted on by the full Senate.

Most of the increases are being phased in over five years.

“Each property’s risk is different. Some policyholders may reach their true risk rate after less than five years of increases, while other policyholder increases may go beyond five years to get to the full risk rate required by the new law,” Fugate said.

Vitter questioned the need for payments to private insurers and agents in an amount that equals 30 percent of the premium—without them assuming any of the risk. “To this pro-business Republican, that seems absurd,” he said.

Fugate defended the agent and insurer payments, saying flood policies are not easy policies to write or service and special training is required. He did, however, say FEMA was looking into whether the percentage might be reduced for larger premiums.

Vitter said that the flood insurance is not just a Louisiana issue, although his state may be first to be experiencing the higher process. “This is a national issue. This movie is coming to a theater near you,” Vitter said to his those not from his state.

Mississippi Insurance Commissioner Mike Chaney has said he wants to sue the federal government to stop the flood insurance rate hikes but the state’s attorney general has declined to represent him.