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last updated on April 27, 2010

Flood Insurance

The National Flood Insurance Program (NFIP) is currently financially unsustainable, and requires significant reforms in order to continue providing flood protection to homeowners and businesses alike.

NAMIC SUPPORTS a long term extension with common sense reforms for the program, such as the phasing-out of subsidies for pre-FIRM structures, the phasing-in of actuarially sound rates for non-residential properties and non-primary residences, and the updating of floodplain maps.

NAMIC STRONGLY OPPOSES the addition of windstorm coverage to the NFIP, which would significantly increase the program’s costs and liabilities at the expense of a competitive private market.

BACKGROUND

In the aftermath of Hurricane Katrina and other storms in 2005, the NFIP incurred over $20 billion in debt to the Treasury. As it currently is constituted, the program will never be able to repay the debt. If Congress does not reform and reauthorize the program, its long-term solvency is at risk.

NAMIC has worked with members of Congress to bring attention to the bipartisan legislation of the 110th Congress that would have provided 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 would be increased to $335,000 for structure, $670,000 for non-residential structure, and $135,000 for contents.
  • Placing the program on a sound financial footing by eliminating the NFIP debt.

In 2007, Representative Maxine Waters, D-Calif., introduced legislation (H.R. 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. H.R. 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 that had been incurred at the time. 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.

Unable to come to an agreement, the two chambers have instead passed a series of short term extensions, often for no more than a few months at a time, and have not yet taken up the issue. In December of 2009, the program was allowed to expire for roughly nine hours when an extension failed to win approval for before the deadline. And again in February 2010, the program was allowed to expire for nearly 2 days before Congress temporarily extended the program. Again in March, 2010, the program expired for over 2 weeks before Congress passed a temporary extension through May 31, 2010.

In the 111th Congress, no NFIP reauthorization and reform legislation has been introduced. However, Rep. Gene Taylor, D-Miss., has introduced H.R. 1264, the Multiple Peril Insurance Act, stand-alone legislation to include wind coverage as part of the NFIP. NAMIC strongly opposes this legislation.

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 currently $20 billion in debt.

CONTACT INFORMATION

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

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