House Flood Insurance Reform Bill Wins Bipartisan Support

A House subcommittee yesterday approved a bipartisan bill to reauthorize and reform the nation’s flood insurance program.

The 10 Republicans and eight Democrats on the Insurance, Housing and Community Opportunity Subcommittee approved the bill on a voice vote.

The legislation (HR 1309) provides for a five-year extension of the National Flood Insurance Program (NFIP) and phases out the program’s rate subsidies, gradually raises all premiums to reflect actual costs, improves the accuracy of flood maps and allows more public input into the mapping process, and encourages private insurer and reinsurer participation in the market.

The bill also adds two new coverage options, ties policy limits to inflation, and sets higher deductibles for rate-subsidized properties.

The NFIP, which is more than $17 billion in debt, is currently slated to expire on Sept. 30. It has been operating on short-term authorizations and has been criticized by fiscal watchdogs for under-pricing risk and by environmental groups for promoting development in environmentally-sensitive areas.

“I’m very pleased we were able to move this bill forward with bipartisan support. The current program is in deep financial trouble and our bill places it back on sound footing by phasing in actuarially sound rates, and it addresses a broad range of concerns about new maps, as well as dams and levees,” said Rep. Judy Biggert, R-Ill., subcommittee chair and chief sponsor of the bill.

“Together, these reforms will help ensure reliable protection for homeowners and businesses while shifting the burden of risk off American taxpayers.”

The bill is co-sponsored by subcommittee members Maxine Waters, D-Calif., Scott Garrett, R-N.J., Robert Dold, R-Ill., Shelley Moore Capito, R-W.Va, and Steve Stivers, R-Oh.

Financial Services Committee Chairman Spencer Bachus, R-Ala., commended Biggert’s committee for its bipartisan action. “Thousands of communities and millions of property owners depend on flood insurance to provide some measure of security. To protect them while minimizing the risk to taxpayers, the NFIP must be made more self-sufficient,” Bachus said.

The plan pushes the program to reduce subsidies in flood insurance rates in several ways.

It requires that rates for most properties be raised by 20 percent a year until they reach actuarially sound levels. These include commercial properties, vacation homes, repetitive loss properties, homes that have had damage exceeding 50 percent of their value, homes that have had improvements exceeding 30 percent of their value, and homes sold to new owners.As part of its effort to move to cost-based rates, the bill raises the cap on increases for certain properties in the program, including commercial buildings, second homes, vacation homes, homes sold to new owners, homes that have had substantial flood damage and improvements, and homes that have had multiple flood claims.

For all other existing policyholders, rates would be allowed to go up within a flex-band of between 10 percent and 20 percent a year. Current law does not allow increases above 10 percent a year.

Also, rates for property owners in communities newly designated as in flood hazard zones would be move to cost-based pricing over a five-year span. Their rates would be start at 50 percent of the actuarial indications the first year, with 20 percent hikes each year thereafter until they are brought in line with what actuaries say they should be.

The bill sets minimum deductibles of $1,000 for properties being charged cost-based rates, and $2,000 for those with subsidized rates.

Maximum coverage limits — currently $250,000 for residential structures, $100,000 for residential contents and $500,000 for commercial properties — would be indexed to inflation starting in 2012.

The bill does not add wind coverage to the NFIP offerings as some lawmakers from coastal states have urged in the past, but it does add two new coverage options: additional living expenses (ALE) up to $5,000 aggregate and business interruption (BI) coverage up to $20,000 per property. This expansion has been backed by business and insurance groups but questioned by some taxpayer and conservation groups.

The bill would establish an advisory council to give local communities more say in the flood mapping process and it directs the Federal Emergency Management Agency (FEMA) that manages the prorgam to take steps to improve the accuracy of maps.

It also lends support to efforts to privatize the program. FEMA must report within 18 months on a “broad range of options, methods and strategies” for privatizing the program. Also, within six months, FEMA must conduct a study to assess the capacity of the private reinsurance, capital, and financial markets to assume a portion of the program’s risk. It authorizes FEMA to secure private reinsurance to help maintain the program’s ability to pay claims and minimize its need to borrow from the Treasury.

The bill also calls for incentives for communities and individuals to take mitigation steps and enforce local building codes.

The legislation has the backing of insurance groups.

Ben McKay, senior vice president of federal government relations for the Property Casualty Insurers Association of America, called the legislation “a step in the right direction for strengthening the program with a critical long-term reauthorization to protect the over 5.6 million Americans who rely on flood insurance.”

“Today’s vote was an important first step for reforming the National Flood Insurance Program,” said Jimi Grande, senior vice president of federal and political affairs for National Association of Mutual Insurance Companies. “But there’s still a long way to go. We urge the full Financial Services Committee to take up HR 1309 swiftly.”, a coalition of conservation and business groups, also praised the action.

“This is a concrete first step towards real reform of the NFIP program. For over 40 years, the federal government, through NFIP has provided significant subsidies for flood coverage. It has provided the wrong incentives, helping to subsidize development in harm’s way,” the group said in a press release. “The American taxpayer has been put at significant risk through this program. The Biggert bill takes significant strides towards protecting taxpayers and we now look forward to its consideration by the House Financial Services Committee.”