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last updated on December 16, 2009

FLOOD INSURANCE

THE ISSUE IS

The reauthorization and reform of the National Flood Insurance Program.

IT IS IMPORTANT BECAUSE

The NFIP is currently set to expire on December 18, 2009. If Congress does not reform and reauthorize the program, its long-term solvency is at risk. 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. With private insurers unable to underwrite the risk of massive floods, it became clear that a federal program’s creation was essential. The program was designed so that the premium dollars taken in every year are used to pay out any flood losses incurred by policyholders. More than 90 percent of all flood policies are written through Write Your Own (WYO) carriers. The WYO Program allows participating property/casualty insurance companies to write and service the standard flood insurance policy. The companies receive an expense allowance for policies written and claims processed while the federal government retains responsibility for underwriting losses.

While the program was designed so that the premium dollars collected are used to pay flood losses incurred by policyholders, the flood losses have been so great in recent years that the program is nearly $20 billion in debt.

In the 111th Congress, no NFIP reauthorization and reform legislation has been introduced. However, HR 3139 was introduced by Congresswoman Maxine Waters, D-Calif., to temporarily extend the NFIP through March 31, 2010, with a commitment to introduce reauthorization and reform legislation in the coming months. This simple reauthorization legislation unanimously passed the House of Representatives in July and has been sent to the Senate for consideration.

It is unclear if the reform legislation will include the wind provision from the House passed flood legislation from the 110th Congress. However, Rep. Gene Taylor, D-Miss., has introduced HR 1264, the Multiple Peril Insurance Act, stand-alone legislation to include wind coverage as part of the NFIP. NAMIC strongly opposes this legislation and its inclusion in the larger NFIP reauthorization and reform package.

The reauthorization and reform of the NFIP died in conference and a short-term extension of the program was passed late in the 110th Congress, extending the NFIP to March 6, 2009. Three temporary extensions have been signed into law during the 111th Congress, extending the program to September 30, 2009, October 31, 2009, and December 18, 2009.

LEGISLATIVE HISTORY

NAMIC, working with its coalition partners, lobbied Congress to pass legislation that would provide meaningful reforms to the NFIP. Among the key reforms included in the proposal that NAMIC supported are:

• Updates of flood maps and elevation standards to include mapping of the 500-year flood plain for future use.
• Phase-in of actuarial rates for non-residential properties and non-primary residences.
• Increased penalties on financial institutions that do not control customer compliance with mandatory coverage.
• Provide additional money for mitigation programs.
• Maximum coverage limits. Limits would be increased to $335,000 for structure, $670,000 for non-residential structure, and $135,000 for contents.
• Allowed the NFIP to borrow money from the U.S. Department of the Treasury to pay its obligations.

In 2007, Representative Maxine Waters, D-Calif., introduced legislation (HR 3121) that would raise the borrowing authority of the NFIP while also reforming the program. This bipartisan legislation was strongly supported by the insurance industry and was almost identical to legislation passed by the House of Representatives in 2006. The legislation had enjoyed significant bipartisan support with almost no controversy until a highly controversial proposal by Rep. Gene Taylor, D-Miss., to add wind coverage to the NFIP was included as part of the bill. HR 3121 passed the House of Representatives in September 2007.

In October 2007, the Senate Banking Committee marked up a separate version of flood reform legislation, which NAMIC strongly supported. S. 2284, the Flood Insurance Reform and Modernization Act of 2007, similar to the House bill, contained many of the same significant reforms. Additionally, the Senate bill, unlike the House bill, included a provision that would forgive the NFIP’s more than $18 billion debt. By eliminating this debt, the NFIP would be in a healthier financial situation. Currently, the NFIP pays about $900 million a year to the Treasury in the form of interest payments. Without eliminating the debt, the future of the program is in serious jeopardy. The bipartisan Senate bill not containing the wind provision that was included in the House bill was quickly marked up and received almost unanimous support, overwhelmingly passing the Senate in May 2008.

NAMIC POSITION

NAMIC strongly supports reform of the NFIP, including flood map updates, phase-in of actuarial rates for non-residential and non-primary residences, mitigation programs, and increased maximum coverage limits.

CONTACT INFORMATION

For more information please contact Kathy Mitchell, federal affairs director, at (202) 580-6744 or kmitchell@namic.org.