House Passes National Flood Insurance Reform

WASHINGTON (June 27, 2006) — The National Association of Mutual Insurance Companies (NAMIC) commends the House of Representatives for seeking swift action to reform the National Flood Insurance Program (NFIP). By a vote of 416-4 today, the House overwhelming approved H.R.4973, the Flood Insurance Reform and Modernization Act of 2006 (FIRM).

H.R. 4973 aims to strengthen the program – funded by premiums and administered by insurance companies – that has an estimated $25 billion debt from claims arising from Hurricanes Katrina, Rita and Wilma.

“It is important for Congress to address problems with the program soon, given that we are already in a new hurricane season,” said NAMIC Senior Federal Affairs Director Justin Roth. “This bill provides the framework for a federal flood insurance program that will be able to continue to serve policyholders in need of flood insurance while protecting American taxpayers.”

The bill mandates several common-sense reforms that represent a promising start toward 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 policyholders 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.

The havoc wreaked by the 2005 Gulf Coast hurricanes has raised important questions about how Americans should prepare for and respond to natural disasters in the future. The likelihood of more frequent and severe natural disasters in the near term, combined with the continuing population growth and development in areas vulnerable to natural disasters, pose significant challenges for government policymakers, insurers, realtors, home builders, mortgage lenders and property owners.

In December 2005, NAMIC formed a task force on natural disasters to address these challenges. Among its findings, the task force concluded that the NFIP should be maintained, subject to the following reforms:

• First and foremost, NFIP premiums must be actuarially sound for all covered structures. The current method for setting premiums, which is based on average annual losses, has been called “unsustainable” by the Congressional Budget Office. This approach has prevented the NFIP from accumulating the surplus necessary to pay claims during periods when loss costs are above average.
• The borrowing authority of the NFIP should be increased so that program administrators will not be required to seek special appropriations from Congress each time a natural disaster involving major flooding occurs.
• The flood maps used by the NFIP must be updated and improved.
• Stiffer penalties should be imposed on financial institutions that either fail to require flood insurance coverage for mortgages on properties in flood-prone areas, or allow the policies to lapse.
• Greater effort should be made to ensure that more people are aware of the program and the benefits of having flood insurance coverage to protect their properties.

“NAMIC believes that the government has an obligation to those homeowners who took responsible action by purchasing flood insurance, and that Congress must take immediate action to ensure that this obligation is met,” said Roth. “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 Tel
(202) 628-1601 Fax
ghowell@namic.org

Justin Roth
(202) 628-1558 Tel
(202) 628-1601 Fax
jroth@namic.org

Posted: Tuesday, June 27, 2006 12:00:00 AM. Modified: Thursday, June 29, 2006 10:10:55 AM.