As flood waters continued rising along the Mississippi River, a House committee yesterday unanimously approved bipartisan legislation to extend the federal flood insurance program for five years and introduce financial reforms of the debt-ridden program.
The legislation (HR 1309) approved by the House Financial Services Committee on a 54-0 vote authorizes the National Flood Insurance Program (NFIP) until 2016 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.
Insurance industry groups wasted no time in praising the House committee’s vote and urging the full House and the Senate to follow suit before the program expires this fall.
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.
Rep. Judy Biggert, R-Ill., is chief sponsor of the bill, which has received bipartisan support, including from Financial Services Committee Chairman Spencer Bachus, R-Ala., and Ranking Member Barney Frank, D-Mass. Its co-sponsors include Rep. Maxine Waters D-Calif., Scott Garrett, R-N.J., Robert Dold, R-Ill., Shelley Moore Capito, R–W.Va., and Steve Stivers, R-Oh.
“Flood waters across the South and Midwest are on the rise, and so is the debt owed by this program,” said Biggert. “We need to put the National Flood Insurance Program back on stable financial footing so that it can provide homeowners with reliable coverage without putting taxpayers on the line for billions in losses. This legislation will give the program long-term stability, help draw better flood maps, and initiate actuarially sound pricing.”
The full committee rejected an amendment that would have blocked NFIP from offering two new optional coverage: 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 agents and carriers but questioned by some taxpayer and conservation groups.
The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) was among the industry groups that welcomed the committee action.
“A five year extension is of the utmost importance, as are reforms to put the program on sound financial footing,” said Charles Symington, Big “I” senior vice president of government affairs. “We are especially grateful that the Committee rejected an amendment that would have removed the inclusion of optional business interruption and additional living expenses coverage as these provisions will better safeguard consumers against flood loss.”
He said the legislation will have the “strong support” of the Big ‘I’ going forward and urged the full House and Senate to take it up as soon as possible to avoid the program’s scheduled expiration at the end of September.
Insurance companies also expressed their support.
“Given the current flooding taking place on the Mississippi river, it is especially critical to get a long-term extension of the program in place so that this debate can move beyond Congress and residents in flood-prone areas can have the stability in the program they so desperately need to insure their homes and businesses,” said Leigh Ann Pusey, president and CEO of the American Insurance Association.
“We applaud the committee for voting today to strengthen the National Flood Insurance Program and ease the burden on the taxpayers. As we watch the Mississippi waters rise, the need for a federal program to provide flood insurance is clear,” said Matt Gannon, assistant vice president of federal affairs for the National Association of Mutual Insurance Companies.
Gannon said a reformed NFIP will “be better able to help policyholders recover from flood losses without having to rely on bailouts from the federal government.”
The House bill 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.
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