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house Bill H.R. 2565

Should FEMA Have to Use the Actual Replacement Cost of a Property When Calculating Flood Insurance Premiums?

Argument in favor

FEMA’s current formula for determining flood insurance premiums uses a national average replacement cost rather than the property’s actual cost, meaning that lower-income policyholders overpay and higher-income policyholders underpay. This bill would fix that by requiring FEMA to use the property’s actual replacement cost.

Janene's Opinion
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08/30/2017
FEMA’s current formula for determining flood insurance premiums uses a national average replacement cost rather than the property’s actual cost, meaning that lower-income policyholders overpay and higher-income policyholders underpay. This bill would fix that by requiring FEMA to use the property’s actual replacement cost.
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Leo's Opinion
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08/30/2017
Property costs can vary greatly depending on location. This is better than the one size fits all method.
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Angela's Opinion
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08/30/2017
This is a no brainer. If you buy a more expensive car you get to pay more for replacement, same rule should apply to housing.
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Argument opposed

There are issues with the way that FEMA is calculating flood insurance premiums and the issue needs to be studied to see if there’s a way to fix that inequity, but this bill would make too big of a change to soon to flood insurance markets and could make it harder to afford coverage.

James 's Opinion
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08/30/2017
The government needs to get out of the property insurance business and let owners pay the full cost of insuring their property. This program merely distorts the true costs of living in unsafe areas. Maybe, if this is done, there will be more rational development around our country's flood prone areas.
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Brian's Opinion
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08/30/2017
If this wasn't in the middle of a disaster maybe the argument could be made. But doing this now seems like some sort of flimflam to me. It's sad I just don't trust Republicans to not spin this somehow to fatten their own wallets. I see so many people doing everything they can to help the victims of this awful storm and a lot more help will be needed. The fact is I would be devastated to lose everything. But I think the whole experience would be humbling and you be happy to have a roof over your head and a means to feed your family. I would be very distraught if I wasn't made whole again after something like this. But in the end it's about survival. And do you really need that McMansion if it means some poor family ends up on the street to make that happen? If your answer is yes shame on you.
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Brad 's Opinion
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08/31/2017
I had no clue the fed govt was in the insurance business. How about just have each person buy the insurance they can afford on the open market. Why are all other tax payers in other states paying for another persons insurance? Who's paying my catastrophic property insurance policy? Oh that's right! Me!! I feel like I'm getting robbed!!
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bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
  • The house has not voted
      house Committees
      Committee on Financial Services
    IntroducedMay 19th, 2017

What is House Bill H.R. 2565?

This bill would require the Federal Emergency Management Agency (FEMA) to use the actual replacement cost value of a property when determining premiums for flood insurance under the National Flood Insurance Program (NFIP), rather than using a national average replacement cost calculation. In effect, this means that lower-income policyholders subsidize wealthier homeowners whose properties are valued above the national average.

The bill would also require FEMA to conduct a study to evaluate insurance industry best practices for risk rating and classification, including practices related to replacement cost value in premium rate estimation. FEMA would transition to using actual replacement cost value one year after the bill’s enactment, and its implementation would be phased in geographically between that time December 31, 2020.

Impact

Flood insurance policyholders; and FEMA.

Cost of House Bill H.R. 2565

A CBO cost estimate is unavailable.

More Information

In-Depth: Sponsoring Rep. Blaine Luetkemeyer (R-MO) introduced this bill to require FEMA to use the actual replacement cost of a property when determining flood insurance premiums:

“The current National Flood Insurance Program (NFIP) fails to do what private insurance policies do: price for risk. Instead, the NFIP relies on a pricing system in which policyholders in less expensive homes subsidize those in more expensive ones. Insurance policies from private carriers take into account for pricing and underwriting purposes the cost to completely replace a structure. The Federal Emergency Management Agency (FEMA) uses an average replacement cost calculation instead of a property-specific one. My legislation would ensure that FEMA would use a property-by-property approach when it comes to pricing for premiums, helping to end the subsidization by everyday Missourians of America’s wealthier homeowners. This legislation is the next step in getting the federal government to adhere to policies and procedures that have been in place in the private sector for decades.”

House Democrats opposed this bill in committee while acknowledging that “policyholders with properties below the average value may be overpaying for flood insurance” and that policyholders above the average are underpaying, which they believe merits further study. They explained their caution in the bill’s committee report:

“Given the broader affordability challenges associated with flood insurance premiums, we must be cautious in calling for changes that could have unintended consequences on flood insurance costs. If flood insurance becomes widely unaffordable, this could have devastating consequences on the housing market as policyholders lose the ability to purchase coverage, and are left unprotected in the event of a flood.”

This legislation passed the House Financial Services Committee on a party-line 34-25 vote.


Media:

Summary by Eric Revell

(Photo Credit: PetarAn / iStock)

Official Title

To require the use of replacement cost value in determining the premium rates for flood insurance coverage under the National Flood Insurance Act, and for other purposes.

    FEMA’s current formula for determining flood insurance premiums uses a national average replacement cost rather than the property’s actual cost, meaning that lower-income policyholders overpay and higher-income policyholders underpay. This bill would fix that by requiring FEMA to use the property’s actual replacement cost.
    Like (91)
    Follow
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    The government needs to get out of the property insurance business and let owners pay the full cost of insuring their property. This program merely distorts the true costs of living in unsafe areas. Maybe, if this is done, there will be more rational development around our country's flood prone areas.
    Like (39)
    Follow
    Share
    Property costs can vary greatly depending on location. This is better than the one size fits all method.
    Like (29)
    Follow
    Share
    This is a no brainer. If you buy a more expensive car you get to pay more for replacement, same rule should apply to housing.
    Like (22)
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    As someone who works in the insurance industry, absolutely.
    Like (17)
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    Yes it is the actual house that's being replaced not the average house being replaced.
    Like (15)
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    Yes and one step further it should be tied to a homeowners insurance policy and managed by the insurance companies. Government bureaucrats are useless and would create chaos for no reason. All they do obstruct not construct. No flood insurance if no homeowners.
    Like (15)
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    If this wasn't in the middle of a disaster maybe the argument could be made. But doing this now seems like some sort of flimflam to me. It's sad I just don't trust Republicans to not spin this somehow to fatten their own wallets. I see so many people doing everything they can to help the victims of this awful storm and a lot more help will be needed. The fact is I would be devastated to lose everything. But I think the whole experience would be humbling and you be happy to have a roof over your head and a means to feed your family. I would be very distraught if I wasn't made whole again after something like this. But in the end it's about survival. And do you really need that McMansion if it means some poor family ends up on the street to make that happen? If your answer is yes shame on you.
    Like (13)
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    The alternative would be rebuilding a home with three walls. Replacement is the only way to go.
    Like (11)
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    Yes, they absolutely should use replacement cost. Replacement cost will replace the damage done to the home at what it would cost to repair or rebuild today. People seem to be confusing the meaning of replacement cost from the comments I have seen so far. I sold insurance and owned my own insurance agency so I know what they mean when they say replacement cost. If you use actual cash value then you are deducting the age of the home. So if your house is 20 years old and you're only giving actual cash value then you're taking what it cost to build that home 20 years ago and not what it's going to cost today. Materials and labor go up each year so replacement cost keeps up with those changes. Actual cash value does not and in the end, these people will pay tens of thousands to hundreds of thousands of dollars out of their own pocket to replace their home.
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    You felt that he was better just because he gave you more when he has $200 and all i had was $10. Maybe this will help you "get " it.
    Like (6)
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    I had no clue the fed govt was in the insurance business. How about just have each person buy the insurance they can afford on the open market. Why are all other tax payers in other states paying for another persons insurance? Who's paying my catastrophic property insurance policy? Oh that's right! Me!! I feel like I'm getting robbed!!
    Like (6)
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    Bankers and government officials conspired in the largest crime in history to defraud home owners by more than three trillion dollars ($3,000,000,000,000) and now they don't want to pay people displaced in emergencies fair market value. Right.
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    Perhaps more low income households could afford flood insurance if premiums were based on replacement cost. Other methods distort the true cost of ownership. The premiums are overall too low now, which is why FEMA is in debt, since the government subsidizes development in flood prone areas.
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    Include a caveat so the climate deniers in the WH cant add addendum's to play politics (such as diverting federal aid money to build a stupid wall)
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    Replacement cost estimates for anything but actual replacement cost are not true replacement. FEMA estimates need to be based on what it actually costs in the region where the damage is. Using national averages as a baseline doesn't take regional costs into account. Actual cost places the burden more evenly on all property owners.
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    Average-smaverage!!! Replace means replace what you lost at what it costs... need to do same with auto insurance!!
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    Both homeowners and businesses across the country depend on the accuracy of flood maps in making decisions about flood insurance and flooding risks. It’s time to make sure the program is on sounder financial footing, that taxpayers are protected from footing the bill for future losses, and it’s time to shift power from bureaucrats in Washington to states, local communities and policyholders. This legislation would ensure that FEMA would use a property-by-property approach when it comes to pricing for premiums, helping to end the subsidization of wealthier homeowners.
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    Equitable
    Like (3)
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    Well yes. Anything else is irrelevant
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