National Flood Insurance Program up for Reauthorization before Congress (updated 11.15.17)
The NFIP was set to expire on September 30, 2017, but prior to that deadline, it was extended until December 6, 2017. Now, Congress continues to consider bills that would reauthorize the NFIP. Most agree that the NFIP should be reauthorized, and many want to see it reauthorized for a longer period and ahead of the deadline to promote stability in the mortgage and real estate industries. However, aside from agreement that we need to keep the program, many differences of opinion arise on how to address the problems of the NFIP.
After fifteen years of lower-than-expected claims, in 2005 hurricanes Katrina, Rita, and Wilma resulted in the need for the NFIP to borrow $17.5 billion from the U.S. Treasury to cover claims. In 2012, Hurricane Sandy resulted in $8.4 billion in payouts and another $6.25 billion borrowed from the Treasury. In 2016, while no one single “catastrophic” event occurred, it was still the third highest payout year ever due to numerous flood in LA, TX, and Matthew’s flooding in many states along the east coast. Payouts of at least $4 billion are projected from these events, leading the NFIP to borrow yet another $1.6 billion in January of 2017. In response to hurricanes Harvey, Irma, Maria, and Nate, Congress ended up writing off $16 billion of NFIP debt so that there would be sufficient borrowing capacity for FEMA to continue paying claims under the NFIP. Some now fear that this year will be the new highest-loss year yet for the NFIP.
The current leading bill for reauthorizing and modifying the NFIP in Congress is H.R. 2874. This will would, among other things:
- Decreases maximum yearly premium increases for most premiums from 18% to 15%,
- Create option for state-based low-income assistance for NFIP coverage with the subsidies paid for by state-based rate increases,
- Ensure rapid availability of monthly payments of flood insurance premiums,
- Increased funding for elevating, buying out, or otherwise mitigating high-risk properties,
- Communicate clearly to policy holders the real flood risk, past flood claims on the property, and the effect of filing additional claims,
- Require, as a condition of a jurisdiction’s participation in the NFIP, that state or local regulations require notice to purchasers or lessees of previous flood damages or flood insurance claims, the obligation to purchase flood insurance (if applicable),
- Numerous provisions to allow and encourage the growth of private flood insurance,
- Provisions related to flood mapping, appeals of mapping decisions, and data and transparency in flood mapping,
- Creates definition for “multiple-loss properties” that goes beyond existing definitions and requires that any new policies on multiple loss properties be charged a full-risk rate with no subsidies whereas currently subsidized properties would increase at least 15%/year until reaching full-risk premiums, but only beginning after payment of the first claim payment after enactment of the new law,
- Limits the payments to private “Write-Your-Own” companies that write and service NFIP policies, and
- Increases penalties for failure to purchase required flood insurance.
Despite passage by the House of Representatives, some interest groups do not support H.R. 2874. For example, the Association of State Floodplain Managers (ASFPM) has issued a letter in opposition to H.R. 2874. While the ASFPM acknowledges some positive aspects of H.R. 2874, overall ASFPM felt that the bill’s weakness outweighed its positive benefits. The letter in opposition provides excellent analysis of weaknesses of H.R. 2874 and suggestions for what Congress should do to protect those with NFIP policies, the NFIP program, and taxpayers.
On the other hand, the National Association of Realtors supports H.R. 2874.
It will be an interesting debate to follow reauthorization, and Florida Sea Grant will be following the developments and updating this space accordingly.
New Edition of the CRS Coordinator’s Manual Completed by FEMA
The 2017 CRS Coordinator’s Manual is now available at www.CRSresources.org/manual. Even while awaiting final release of the new manual, FEMA had already been working to prepare floodplain managers for the new manual.
Here is a FEMA-compiled list of changes to the 2017 Manual.
State-level Bills Related to Flood Insurance
CS/CS/HB 813 passed the Florida Legislature in May 2017. It extends the time during which flood insurance can be placed with surplus lines insurers, or insurers not fully regulated under Florida law like regular insurance carriers. Under current law, this deadline is July 1, 2017, but the new law extends this until July 1, 2019.
During debate of a related Senate bill, one senator expressed concern that “surplus lines” of insurance that are not as carefully regulated by the state were intended for unusual circumstances and not as general replacements for regulated insurance. Bill CS/CS/HB 813 to some degree addresses this concern through two mechanisms. First, the new law limits the ability to use surplus lines insurers without making an effort to place policies with more closely regulated “authorized” insurers only until July 1, 2019. Second, the new law requires that policies may only be placed with surplus insurers that maintain a financial strength rating of ‘superior’ or ‘excellent’ by A.M. Best Rating Services.
Additionally, CS/CS/HB 813 adds a requirement that anyone getting private flood insurance, whether from an authorized or surplus lines agent, receive notice of what rate would apply under the National Flood Insurance Program if the property owner wished to return to the NFIP. This would allow those seeking private insurance to see whether they could return to the NFIP with a subsidized rate or whether any subsidized rate would be permanently lost for the property.
(Last updated 5.9.17) Senate Bill 112 did not move forward during the 2017 Session as it was withdrawn from consideration on May 8. This bill was similar to one that died during the 2016 legislative session: it would have created a $50 million grant program for flood mitigation. SB 112 required the Department of Economic Opportunity to develop criteria to rank proposals and would have expanded the powers of the Florida Communities Trust to coordinate and fund flood mitigation projects.