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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.

In June 2004, President George W. Bush signed into law S. 2238, the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (Public Law No. 108-264). The law reauthorizes the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), through 2008. The Act passed the House on June 21, under suspension of the rules by voice vote.

Reforms in the law will address the problem of repetitive loss properties through flood mitigation. The law authorizes the launch of a pilot program that will require people to either accept mitigation assistance or face significantly higher premiums. Owners who refuse assistance will no longer be eligible for subsidized flood insurance far below the actuarial risk rate they should be paying. Over time, as mitigation offers change the nature of repetitive loss properties, the NFIP is expected to save a significant amount of money, since FEMA estimates that these properties alone cost the program $200 million annually.

NAMIC POSITION. NAMIC supported efforts to reform the national flood program and continues to believe 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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