House Financial Services Committee Increases NFIP Borrowing Authority

WASHINGTON (March 16, 2006)—The National Association of Mutual Insurance Companies (NAMIC) commends Chairman Michael G. Oxley, R-Ohio, and the House Financial Services Committee for seeking swift action to increase the National Flood Insurance Program’s (NFIP) borrowing authority.

The committee voted early this afternoon to increase the NFIP’s borrowing authority from $18.5 billion to $25 billion – the amount needed to make claim payments through the current fiscal year.

“This new increase is needed immediately as the NFIP will soon run out of money – again – to pay its claims that are owed to those homeowners who have paid for flood insurance,” said NAMIC Federal Affairs Senior Vice President David A. Winston. “Without an increase in borrowing authority, the NFIP would have to instruct write-your-own (WYO) companies to stop paying claims, as it did late last year.”

The bill, named the “Flood Insurance Modernization and Reform Act of 2006,” would overhaul the federal flood insurance program, which, since Hurricanes Katrina, Rita, and Wilma, has turned to the U.S. Treasury to pay most of the claims.

Included in the bill are additional common-sense reforms that NAMIC, along with its coalition partners believe is a substantial first step in reforming the program:

• Reduction of waiting period for effective date of policies. The length before a flood policy kicks in will now be reduced to 15 days from the current 30.
• Maximum coverage limits. Limits would be increased to $335,000 for structure, $670,000 for non-residential structure, and $135,000 for contents.
• Coverage for additional living expenses, basement improvements, business interruption, and replacement cost of contents. There would be an additional charge for those policy holders who would like to have business interruption covered.
• Increase in annual limitation on premium increases. The annual increase for premiums can be raised by 15 percent up from the current 10 percent cap.
• Updating of flood maps and elevation standards. Of note, this would include mapping of the 500-year flood plain that could be used in the future.
• To conduct a study regarding states of pre-firm properties and a mandatory purchase requirement for natural 100-year flood plain and non-federally related loans.

Hurricanes Katrina, Rita and Wilma led to more claims for the program in one year, estimated at $23 billion, then had been paid out from 1968-2004 combined.

Due to the extraordinarily large number of claims, the NFIP quickly ran through all of its funds. On Nov.14, 2005, the acting head of the NFIP sent a letter to all WYOs informing them that they should stop paying all claims on flood policies until further notice.

In response to this crisis, NAMIC and its coalition partners lobbied Congress to quickly pass legislation that would allow the NFIP to borrow money from the Treasury to pay out its obligations. After several days of negotiations, both the House and Senate agreed that a more long-term fix was needed to get the program through the year. In the end, the bill was amended to increase the borrowing authority to $18.5 billion.

“NAMIC believes that we must take care of those homeowners who took responsible action by purchasing flood insurance, and we must do so immediately,” said Winston. “NAMIC will continue to work with Congress to ensure that any reforms that are put in place will help strengthen the program, not weaken it.”

For further information, contact
Georgiann Howell
(202) 628-1558
(202) 628-1601 Fax
ghowell@namic.org

Rick Nelson, APR, CAE
(317) 875-5250 Tel
(317) 879-8408 Fax
rnelson@namic.org

Posted: Thursday, March 16, 2006 12:00:00 AM. Modified: Friday, March 17, 2006 9:28:05 AM.