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NATURAL CATASTROPHE EXPOSURES

FLOOD INSURANCE

THE ISSUE IS. The adoption of legislation to reduce repetitive losses under the National Flood Insurance Program (NFIP).

IT'S IMPORTANT BECAUSE. Congress created the NFIP in 1968 to address the increasing costs of taxpayer funded disaster relief for flood victims and the increasing amount of damage caused by floods. The Federal Emergency Management Agency (FEMA) administers the NFIP. Home and business owners are able to purchase flood insurance if their properties are located in communities that adopt and enforce floodplain management ordinances to reduce future flood damage. One of the objectives of the NFIP is to make flood insurance affordable, so full actuarial rates are not charged. The high incidence of repetitive loss claims is a major problem that has developed under the NFIP. A National Wildlife Federation (NWF) analysis of the NFIP demonstrated that 40 percent of the program's payments go to repetitive loss properties, although they represent only two percent of all NFIP-insured properties. In addition, the NWF analysis found that almost 10 percent of repetitive loss homes have had cumulative NFIP claims that exceed the property's actual value.

Legislation to reduce repetitive loss claims was introduced early in the 108th Congress. On January 8, 2003,Representatives Doug Bereuter (R-Neb.) and Earl Blumenauer (D-Ore.) introduced H.R. 253, which would impose actuarial, risk-based rates for flood insurance on property owners who have had two or more NFIP claims paid out by FEMA and who have refused buyouts, elevation or other flood mitigation measures funded by FEMA. It would also make repetitive loss policyholders who have refused flood mitigation measures ineligible for Federal disaster relief assistance.

At the end of the first session of the 108th Congress, the House of Representatives passed H.R. 253, the Flood Mitigation Reform Act, which would establish a five-year pilot program for the mitigation of severe repetitive loss properties. The pilot program would run in collaboration with the NFIP. There would be no changes to the existing NFIP program except the bill would authorize $40 million/year versus the current $20 million/year. The bill would authorize/reauthorize the pilot program and NFIP through September 30, 2008.

Prior to adjournment, the Senate and House reauthorized the NFIP program that was due to expire December 31, 2003 for three months and will now expire March 31, 2004. However, a provision was placed in the Consolidated Appropriations Bill (H.R. 2673), which now extends the NFIP until June 30, 2004.

NAMIC POSITION. NAMIC supports efforts to reform the national flood program. NAMIC believes that it is reasonable to require homeowners who live in flood-prone areas to take advantage of mitigation measures offered by FEMA as a condition of receiving future disaster relief.

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