Responding to Concerns About Affordability, Congress Pulls the Plug on 2012 Flood Insurance Reforms

Ethan I. Strell, CCCL Associate Director and Fellow

On March 21, 2014, President Obama signed into law the Homeowner Flood Insurance Affordability Act of 2014 (2014 Act), whose stated purpose is to “delay the implementation of certain provisions of the Biggert-Waters Flood Insurance Reform

Texas Hurricane Damage (photo credit: FEMA)
Texas Hurricane Damage (photo credit: FEMA)

Act of 2012, and for other purposes.”[1]  While the original bill introduced in the House delayed implementation of certain premium increases required by the 2012 law, the bill signed into law actually repeals or modifies some, but not all, of those reforms.

The nation’s flood insurance program is a complex regulatory regime, and the complexity of the 2014 Act adds to the confusion.  This article parses exactly what Congress did and did not do to the prior reforms to the national flood insurance program.

 2012 Biggert-Waters Reforms

In 2012, Congress remarkably reformed the money-hemorrhaging federal flood insurance program with the bipartisan Biggert-Waters Flood Insurance Reform Act of 2012 (BW12).[2]   In addition to a number of non-controversial reforms like reauthorizing and funding the flood insurance program for five years, requiring better flood mapping, and requiring FEMA to undertake various studies, including an affordability study, BW12 also required that subsidized and grandfathered[3] premiums be phased out or immediately eliminated, and that property owners begin to pay the true risk-based premium for their flood insurance.

Under BW12, subsidized rates would have been phased out, depending on the type of property.  For instance, premiums on non-primary (vacation) homes, businesses, and properties that have frequently suffered flood damage (“severe repetitive loss” properties) were to increase 25 percent annually, until full risk rates were reached.  For primary residences, subsidies would not be phased out.

However, all properties, including primary residences, would immediately have full risk-based rates if the property was sold, the policy lapsed, or if the property purchased flood insurance for the first time.  The prospect of immediate rate increases put a chill on real estate transactions in flood zones, and property owners and real estate interests argued that this provision would make property values plummet and make homes unsellable.

Grandfathered properties (those that were built in compliance with existing floodplain regulations, but were subsequently re-mapped into a more risky flood zone) would also be phased into higher rates based on the current applicable flood map over a five year period, though implementation of the grandfathering provisions lagged behind the reforms to subsidized properties.

2014 Backlash

As the premium increases required by BW12 became imminent, property owners and their elected representatives (even including one of the law’s namesakes, California Representative Maxine Waters) forcefully complained about unaffordable premiums, declining property values, and lack of warning and information from FEMA.

As a result of the clamor over potentially dramatic premium increases, legislation was introduced in both the House and Senate seeking to roll back or delay the BW12 reforms.  Although opposed by the Republican leadership, the reform bills had sufficient popular support in both parties to overcome that obstacle.

The bill that was finally enacted and signed into law on March 21 repeals reforms to subsidized rates, modifies reforms to grandfathered properties, and stops immediate rate increases when a property with an existing flood policy is sold.

Subsidized Properties

Regarding subsidized properties, the most significant aspect of the 2014 Act is that the sale of a property, or the purchase of a new policy, no longer triggers an immediate jump to full risk-based rates.  Lapsed policies are still subject to losing subsidized rates.  Specifically, Section 3 of the 2014 Act:

  1. Deletes the BW12 provision requiring risk-based rates for properties not insured after July 6, 2012;
  2. Deletes the BW12 provision requiring risk-based rates for properties purchased after July 6, 2012;[4] and
  3. States that when someone purchases a property with an existing policy, the purchaser can assume the existing policy for the remainder of the policy’s term.[5]

Conversely, the 2014 Act keeps the subsidy cut to properties with lapsed policies, but if the lapse was caused by the property not needing insurance, the immediate rate jump would not apply.  Section 3 changes the language from BW12’s lapse “as a result of the deliberate choice of the holder of such policy,”  to “unless the decision of the policy holder to permit a lapse in flood insurance coverage was as a result of the property covered by the policy no longer being required to retain such coverage….”  It is unclear how many properties this provision would affect.

Section 3 also explicitly allows people who purchase properties with existing policies to maintain the existing premium rates through the duration of that existing policy.[6]  FEMA is required to produce the revised rate tables within eight months, and private insurance companies would have an additional six to eight months to implement the new rates.[7]  Whether those deadlines are realistic remains to be seen.

The new law limits most premium increases to a maximum of 18 percent annually, and requires that policyholders who paid more because of subsidy eliminations in BW12 be refunded.[8]

Grandfathered Properties

Regarding grandfathered properties, Section 4 of the 2014 Act amends 42 USC § 4015 (Chargeable premium rates) by eliminating paragraph (h)(enacted as part of BW12), which required phased premium increases for grandfathered properties upon remapping, i.e., those properties that either were newly mapped into a flood zone, or updated into a more restrictive (higher risk) flood zone.

Additionally, as with subsidized rates, grandfathered rates are now transferrable to a new purchaser.

Affordability Issues

In addition to unwinding the premium reforms, the 2014 Act requires FEMA to develop a draft “Affordability Framework” of programmatic and regulatory changes, considering FEMA’s communication with policyholders, targeted subsidies based on need, community actions to reduce flood risk, the impact of flood premium increases on participation in the program, and the effects of remapping on affordability.[9]  The Affordability Framework is in addition to the Affordability Study required by BW12, and the Framework must be submitted to Congress 18 months after the Affordability Study.

The 2014 Act also modifies the requirements for the BW12 Affordability Study.  Specifically, it adds to the existing BW12 factors that FEMA must also consider: (1) enhanced mitigation assistance and means tested assistance if premiums increase more than two percent of the liability coverage amount under the policy; (2) the effects of the establishment of “catastrophe savings accounts” on long-term affordability; and (3) options for modifying the surcharge applicable to all policies based on income, property value, or risk of loss.[10]  Additionally, the amendments require completion of the Affordability Study within 18 months and increases its funding from $750,000 to $2,500,000.


A serious problem with using FEMA flood maps as the basis for determining flood risk is that existing maps are based on historical data and do not account for projected sea level rise.  An important provision of BW12 established a Technical Mapping Advisory Council, which was charged with advising FEMA how to improve flood maps and the flood mapping process.  Notably, BW12 explicitly required the Advisory Council to research and recommend ways to “ensure that flood insurance rate maps incorporate the best available climate science to assess flood risks,” including considering sea level rise and the effect of future development on flood risk.[11]  Despite the importance of the Technical Mapping Advisory Council, FEMA has been slow to establish it.  As of this writing, the Council still has not yet been formally established or convened.

Fortunately, the 2014 Act does not do away with the Technical Mapping Advisory Council and, in fact, reinforces its role.  Section 17 of the 2014 Act requires that the Advisory Council review FEMA’s flood mapping program, and requires FEMA to certify to Congress when the mapping program has been implemented, and provide Congress with the Advisory Committee’s report.  The legislation, however, does not establish a deadline for FEMA’s completion of the mapping program.

In addition, the 2014 Act requires FEMA to notify and consult with local communities and their Congressional representatives before remappping, in order to discuss the appropriateness of the mapping models to be used, and disclose the estimated number of properties that will be affected by proposed map changes.[12]

Alternative Mitigation Methods

Currently, the only way to mitigate a building’s flood risk (and thus lower premiums) is to elevate the structure.  Elevation of buildings in urban areas, often including physically connected buildings, may not be practical for engineering and aesthetic reasons.  The 2014 Act requires FEMA to establish guidelines within one year that provide alternative mitigation measures for buildings that cannot be elevated.  The guidance must include types of building materials and floodproofing.  Additionally, FEMA must inform property owners about how the alternative mitigation methods will affect premiums.

Additional components of the 2014 Act include:

  • Imposing a new surcharge of $25 on all new residential policies, and $250 on new commercial or non-primary residence policies.[13]
  • Granting FEMA authority to purchase reinsurance through private markets;[14]
  • Eliminating a coverage requirement for structures not attached to the primary residential structure (though lenders may still require such coverage);[15]
  • In estimating risk-based rates, requiring FEMA to take into account (in addition to actual risk and accepted actuarial principles required by BW12) flood mitigation activities taken by property owners, such as elevating structures, floodproofing measures, and flood forecasting;[16]
  • Increasing the threshold of substantial improvements to a property triggering rate increases from 30 to 50 percent of fair market value.[17]  According to the Association of State Floodplain Managers, BW12 changed the rate to 30 percent “for no apparent reason.”[18]
  • Providing funds to reimburse homeowners who successfully appeal mapping determinations.[19]
  • If a federally or state-funded habitat restoration project, such as dam removal or fish passage construction, results in a map change, exempting the person requesting the map change from review and processing fees.[20]
  • Completing a study on community-based programs: Within 18 months, FEMA must study and report to Congress how to make available voluntary community-based flood insurance policies.  The report must include recommendations for the best manner to incorporate voluntary community-based flood insurance policies into the national program, and strategies to encourage communities to construct, reconstruct, or improve flood mitigation structures, such as levees and dams.  After submission of the report, the Comptroller General must review and comment on the report.[21]
  • Establishing a flood insurance advocate: The legislation requires FEMA to designate a flood insurance advocate to assist property owners in understanding flood risk,  options for mitigating risk, the remapping and appeals processes, and other aspects of the flood insurance program.[22]
  • Flood protection systems.  Properties protected by federally accredited flood protection systems receive lower premiums.  If the flood protection systems are under construction or reconstruction, the law indicates how much progress is required to receive lower rates.  The 2014 Law amends this section of 42 USC § 4014 to clarify that any source of funding (federal, state, and local) for the construction or reconstruction can count towards progress on construction or reconstruction.[23]

[1] H.R. 3370.

[2] The National Flood Insurance Program was established by Congress in 1968, and has subsequently been modified and broadened by legislation in 1968, 1973, 1994, 2004, and 2012.  The Federal Emergency Management Agency, or FEMA, in the Department of Homeland Security, administers the National Flood Insurance Program.

[3] Subsidized properties are those that were built before a flood insurance rate map (or FIRM) was in place for that location, generally in the 1970s or ’80s.  Approximately 20 percent of insured properties are subsidized.  Because the properties were built before a FIRM was in place, they also are called “pre-FIRM” properties.

Grandfathered” properties are those that were built in compliance with an existing flood map at the time, but those maps have since been revised, putting those properties in a higher risk area.  Grandfathering allowed those owners who had initially built to code to pay premiums according to the original map, not the current map.  Thus, although not technically subsidized, those owners’ rates do not reflect their actual risk.

[4] 2014 Act § 3(a)(1).

[5] Id. § 3(b).

[6] Id. § 3(b).

[7] Id. § 3(a)(3)(B).

[8]  Id. §§ 3(a)(4); 5(5).

[9] Id. § 9.

[10] Id. § 16.

[11] 42 USC § 4101a(d)(1).

[12] 2014 Act § 30.

[13]  Id. § 8.

[14] Id. § 10.

[15] Id. § 13

[16] Id. § 14.

[17] Id. § 15.

[18] Association of State Floodplain Managers, Inc., ASFPM Analysis of the Homeowners Flood Insurance Affordability Act, updated Mar. 28, 2014, at 4, available at

[19] Id. § 17. 

[20] Id. § 20. 

[21] Id. § 23. 

[22] Id. § 24. 

[23] Id. § 19. 

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