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Higher Flood Premiums a Major Bone of Contention in Storm States

Implementation of market-based rates for flood insurance is causing controversy in some communities where some residents are experiencing flood “sticker shock...”
September 27, 2013

Implementation of market-based rates for flood insurance is causing controversy in some communities where some residents are experiencing flood “sticker shock.” This has led to proposals in Congress to delay some increases in premiums resulting from last year’s enactment of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12). Ground Zero for the opposition to higher rates has been in New Jersey and Louisiana, which experienced massive losses from Superstorm Sandy in 2012 and Hurricane Katrina in 2005, respectively.

In Louisiana, Insurance Commissioner Jim Donelon warned in a speech to the Baton Rouge Press Club that what he called “draconian rate increases” for flood insurance under the National Flood Insurance Program (NFIP) would be devastating to homeowners and businesses. He urged Congress to put off changes under BW-12 for at least another year. Donelon said the law reauthorizing the NFIP, which was originally set up in 1968, calls for substantially higher premiums for certain policyholders in high-risk areas who have had their rates subsidized until now and these increases threaten to devastate Louisiana’s economy and make thousands of properties valueless. Proponents of the changes contend the rate increases will help get the program out of debt and move it toward actuarial soundness.

In New Jersey, a state legislator has introduced a bill that is intended to make it easier for consumers to sue their insurance companies. Assemblyman Reed Gusciora (D-Mercer/Hunterdon) wants to make the expectation of good faith an actual law after hearing homeowners during public hearings complain about how insurers are handling claims. The bill he introduced would create a private cause of action for policyholders when insurers act in bad faith on claims from a declared disaster, as judged by a pronouncement of a state of emergency from either the governor or president.

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