Homeowner and Flood Insurance Affordability Act of 2013 AKA Grimm-Waters 2013: Summary of provisions that will most affect property owners

The Grimm-Waters Act, or Homeowner and Flood Insurance Affordability Act of 2013, was passed in March 2014 in response to complaints that the Biggert-Waters Act was unfair and causing excessive flood insurance rate increases for some property owners. In response to political pressure, Congress succeeded in passing Grimm-Waters, which reformed parts of BW-12, repealed some provisions, and added new provisions. This summary was put together in March 2014 based on several summaries and some reading of the bill text. It is possible that some of the information below will be slightly altered as more in-depth, accurate information becomes available.

For a PDF version of this summary, click here.

Please see the glossary if there are terms you are unfamiliar with.

Overall Comments

  • For second homes and businesses, Grimm-Waters is worse than BW-12 because those policyholders will continue to experience a 25% annual increase and are charged an additional $250 annual surcharge
  • Although the map trigger for rate increases has been removed, this reform causes subsidized primary homes to come up to full risk rates more consistently (and in many cases sooner) than under BW-12 (about a 15% annual increase for all pre-FIRM primary homes). If a subsidized primary home was not in an area where maps were updated, it wouldn’t experience rate increases. Now all primary homes will experience rate increases immediately, but they will be on a more gradual (and more bearable) timescale regardless of map updates. Further, map updates are less likely to be inhibited by politics.
  • A property that previously would have been grandfathered (mapped into a higher risk zone but charged a rate based on the zone it was in when built) will now experience a 15% average annual rate increase when mapped into a higher risk zone until actuarial rates are reached – this will keep future properties from becoming grandfathered, ultimately leaving only previously grandfathered properties (pre-2014) at below-full-risk rates
  • Voluntary policyholders are charged higher rates to allow for prolonged subsidies, $25 for primary homes and $250 for secondary homes and businesses – further exacerbates unfair charges on some policyholders to pay for subsidized policyholders
  • All policyholders must be alerted to their full actuarial rate – this will allow them to understand their risk and know what to expect in terms of rate increases; it also means that all SFHA policyholders will have to obtain elevation certificates in order for FEMA to determine their full rates
  • The provisions triggering a complete elimination of subsidies upon the sale of a property or purchase of a new property has been repealed. If a subsidized property is purchased, the new property owner will experience the same 15% annual increase that the previous owner will now begin to experience under Grimm-Waters

Changed Biggert-Waters Provisions

  • Property sale/new or lapsed policy trigger removed: policyholders will no longer immediately be charged full actuarial rates for previously subsidized properties when a new property or policy is purchased, or after a policy has lapsed
  • ALL subsidized properties (pre-FIRM in the Special Flood Hazard Area) are put on a glide path toward actuarial rates. The increase is set at an average of 15% overall. The subsidy elimination portion of the rate increase cannot be less than 5%, and the overall rate increase (which includes the 5% assessment for the reserve fund and normal annual rate increases) must be capped at an average of 15% (reduced from 20% in BW-12), not to exceed 18% for an individual property EXCEPT for second homes, businesses, severe repetitive loss properties, properties with total payments exceeding the value of the structure, and properties with substantial damage/improvements that retain a 25% annual increase. How these percentages will be calculated is unclear, but will most likely be a percentage of the previous year's premium
  • Section 100207, which allowed for map (FIRM) updates to trigger rate increases on primary residences, has been repealed
  • If a property is mapped into the Special Flood Hazard Area, for the first year it will be charged as a Preferred Risk Policy and then will have rates increased an average of 15% until actuarial rates are reached – this will prevent future grandfathering
  • The “substantial improvement” threshold is changed back to 50% from 30% (where BW-12 put it)
  • Appropriates $2 million for affordability study, expands scope of study and requires an “affordability framework, completion date changed to two years after the passage of this Act
  • Removes some regulations from private flood insurance and modifies states’ authority to regulate

Biggert-Waters Provisions Still in Place (not an exhaustive list)

  • Those properties previously affected by BW-12 Section 100205 (second homes, businesses, severe repetitive loss, properties with total payments exceeding the value of the structure, substantial damage/improvements) retain a 25% annual increase based on the previous year’s premium
  • Reinsurance may be purchased by the NFIP
  • A reserve fund will be created for the NFIP with a 5% assessment on all policies
  • Sea level rise may be included in future FIRMs (as determined by the Technical Mapping Advisory Council)
  • The Technical Mapping Advisory Council is created, which is responsible for recommending how to improve the methodology, accuracy, ease of use, and distribution of FIRMs
  • Any policyholder refusing mitigation assistance will move to full actuarial rates

New Provisions

  • An annual surcharge will be assessed on all properties: $25 for primary residences, $250 for secondary residences and business

o   This means that voluntary policyholders are now being charged even more to help fund subsidies.

o   These fees go into the Reserve Fund, which will be tapped before the NFIP seeks to borrow from the Treasury

o   Seems to end when all subsidies have been removed

  • Residential policyholders may opt for a $10,000 deductible to lower annual rates
  • Any policyholder that in 2013 paid higher rates based on BW-12 will be refunded the excess premium paid based on the new rate structure (most likely to average about 10% of the increased premium cost – if the prior premium was $400, and in 2013 the policyholder paid $500 [25% increase from BW-12], the policyholder will be refunded about $40)
  • FEMA is directed to consider mitigation activities (e.g. land use rules and flood-proofing) when setting premiums – but how this will be implemented is unclear
  • FEMA must certify in writing to Congress that the mapping methods used will result in technically credible flood hazard data (not sure what the background is on this)
  • FEMA must alert property owners of alternative methods to flood mitigation aside from elevation (for instances when elevating may be impossible – e.g. townhouse)
  • FEMA must alert all policyholders to their actuarial rates, regardless of whether they are paying them already – this ensures policyholders understand their risk; it also means that all SFHA policyholders will need to obtain elevation certificates in order for FEMA to determine their risk