FEMA outlines next steps for flood insurance law

March 27, 2014
Author: © 2014 Florida Realtors®

In testimony before a U.S. House subcommittee, Federal Emergency Management Administration (FEMA) Administrator Craig Fugate talked about the timing of implementation. He suggested that homeowners and buyers be patient – it may take awhile for the law’s mandates to filter down to insurance agents.

President Obama signed the flood insurance law on Friday, but FEMA has up to eight months to develop guidance for insurance companies, according to Lisa Jones, a consultant hired by the National Association of Realtors® (NAR) to navigate the complicated law. And after FEMA solidifies the new rules, insurers have up to six months to retool their software.

Rep. Steven Palazzo, vice chairman of the House Subcommittee on Emergency Preparedness, Response, and Communications, asked Fugate at a hearing yesterday if there was a way to fast-track the process.

According to Fugate, the first step is to explain the grandfathering clause – where a homebuyer pays the same rate as a home seller in areas where FEMA subsidizes some flood insurance rates – to insurance agents in the field because “It’s going to take time to get that out there to every agent and get that into the system.”

Fugate says buyers, at least in the short term, may have to work with both their insurance agent and FEMA to get the correct flood insurance rate. FEMA “may need to handle some of the immediate (flood insurance rate requests) – literally, hand-walk it through the process until the system is fully up and running with the new changes,” he testified.

Fugate pointed to one part of the new law that would take time to calculate: A mandate that no single premium exceed 18 percent, and “we’re looking at the timeframes you gave us to do refunds” for homeowners who already paid a higher flood insurance premium.

Fugate said the new mandatory caps will also impact all calculations for rate increases, and it will take FEMA time to do that, followed by software changes to programs that insurers use to quote rates to homeowners.

Fugate’s testimony is available in an online video.

Higher deductibles

In a flood insurance presentation earlier today, Jones told a group of Realtors that a little-noted provision of the new law could help drive down flood insurance costs over the long term: An option for homeowners to increase their deductible.

The new law allows deductibles as high as $10,000 for residential properties, which could drive the down the overall cost of flood insurance. The law also waives the mandatory purchase of flood insurance for detached structures.

Under the law, insurers must tell homeowners seeking or renewing flood insurance about the higher deductibles, along with the consequences should they choose a higher option. However, that change could also take time before it trickles down to homeowners and buyers.