House Approves Flood Insurance Program Renewal, Reforms

July 13, 2011

The House of Representatives has approved a bipartisan bill to reauthorize the federal flood insurance program for five years and change some of its practices to improve its financial operations.

The measure to renew and reform the National Flood Insurance Program (NFIP) passed by a vote of 406 to 22, with 21 Republicans and one only Democrat, Rep. Brian Higgins of New York, voting against it.

An amendment to completely shut down the program failed.

The House bill (HR 1309) was authored by U.S. Representative Judy Biggert, R-Ill., who chairs the Subcommittee on Insurance, Housing and Community Opportunity.

The Senate must still act on the bill. Lawmakers hope to send the bill to the President Obama for signing before Sept. 30, when the program’s current authorization is set to expire. A Senate banking subcommittee held a flood insurance hearing in June.

“Homeowners and communities that rely on the NFIP are the clearest winners in today’s vote, but with these reforms, the taxpayers also will finally get the protection they deserve,” said Biggert. “We worked with Members of Congress and stakeholders from every corner of the country to craft this bill, and I’m pleased that its bipartisan passage reflects our collaborative approach.”

NFIP, which currently operates with a debt of nearly $18 billion, is administered by the Federal Emergency Management Agency (FEMA). Since 2006, auditors at the Government Accountability Office have identified the program as high-risk, and it has been widely criticized for under-pricing risk and promoting development in flood-prone areas that are more suitable for conservation.

“As the first significant reform to the program in nearly a decade, this bill will phase-out taxpayer-subsidized rates and restore the integrity of the flood mapping system,” said Biggert. “It also eliminates barriers to the development of a private flood insurance market, and helps take taxpayers out of the risk business. The NFIP is too important to let lapse, and too in debt to continue without reform. I urge my colleagues in the Senate to speed this legislation to the President’s desk.”

The bill was co-sponsored by Reps. Maxine Waters, D-Calif., Shelly Moore Capito, R- W.Va., Scott Garrett, R-N.J., Robert Dold, R-Ill, Steve Stivers, R-Oh., and 14 others.

In addition to reauthorizing the NFIP until 2016, the bill phases in risk-based premiums, and phases out subsidies for certain properties, including high-risk buildings subject to repeat claims. It raises the cap on annual premium increases from 10 percent to 20 percent, which supporters hope will help transition properties newly mapped into flood zones, and it indexes maximum coverage limits to inflation.

The bill also confirms FEMA’s authority to utilize private reinsurance in lieu of taxpayer exposure to mitigate risk, and directs the agency to report on proposals from the private market for assuming risk within the program.

It also addresses risk mapping standards and mitigation assistance.

It expands the options NFIP can offer to include actuarially priced business interruption and additional living expenses coverages, a provision sought by insurance agents.

An amendment by Rep. Jeff Flake, R-Ariz., that would have stripped these additional coverage options from the bill was handily defeated.

The Independent Insurance Agents & Brokers of America (Big “I”) praised the House vote.

“A five year extension is of the utmost importance, as are reforms to put the program on sound financial footing. The Big ‘I’ strongly supports efforts to extend and improve the NFIP and we urge the Senate to take up extension legislation as soon as possible to avoid the program’s looming expiration at the end of September,” said Robert Rusbuldt, Big “I” president & CEO.

“The Big ‘I’ especially thanks the House for overwhelmingly rejecting the Flake amendment to strip the optional business interruption and additional living expenses coverages,” said Charles Symington, Big “I” senior vice president of government affairs. “These coverages are critically important to consumers and small businesses and the Big “I” strongly supports their inclusion in the Flood Insurance Reform Act.”

Insurers also welcomed the House action.

The National Association of Mutual Insurance Companies (NAMIC) said the bill is a major step in bringing fiscal responsibility to the debt-ridden program.

“These commonsense, bipartisan reforms will help the NFIP address problems that have plagued the program for years,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC. “For the NFIP to survive, it must be able to price coverage to reflect the risk of flooding facing a property, and cut the losses from those properties that will not undertake any mitigation efforts despite repeated flooding.”

Grande praised the defeat of an amendment by Rep. Candice Miller, R-Mich., to eliminate the NFIP altogether. “The Miller amendment would have been devastating for taxpayers and consumers, and defeating it was a top priority” Grande said. “There is no viable private market for flood insurance, and eliminating the NFIP won’t create one. Instead, the Miller amendment would have left millions of homes and businesses at risk of flood losses and increased the need for taxpayer-funded federal aid in the aftermath of a natural disaster.

Among the amendments approved is one sought by some private insurers that would assure that the more than 780,0000 NFIP policies that State Farm administered before it dropped out of the program are offered to private insurers to administer under the Write-Your-Own Program, rather than being transferred to the NFIP’s own direct administration. The amendment requires FEMA to ensure that all policies eligible to be administered by the 90 participating private WYO insurers are made available to them. Under the WYO, private insurers are paid for administering the policies while NFIP retains responsibility for any losses.

FEMA had opposed transferring the State Farm policies to the WYO private insurers, arguing that keeping them under the government administration would save millions.

State Farm also opposed having the policies go to private insurers, many of them its competitors.

The Property Casualty Insurers Association of America (PCI) supported this WYO amendment, which was sponsored by Reps. Spencer Bachus, R-Ala., Brad Sherman, D-Calif., and Gregory Meeks, D-N.Y.

Ben McKay, senior vice president of federal government relations for PCI, said that without the Bachus-Sherman-Meeks amendment, the federal government’s management of flood insurance could have ballooned by 700 percent.

“This amendment is a victory for the 800,000 NFIP policyholders that have recently been displaced and will bring greater consumer choice for these home and business owners,” McKay said.

SmarterSafer.org, a national coalition of business and environmental groups that has lobbied on flood insurance also urged the Senate to pass the measure.

“HR 2018 is certainly a step in the right direction. It will help put the program on firmer financial footing, and it will better protect people by using the best science to map flood zones,” said Joshua Saks, a senior legislative representative with the National Wildlife Federation, one of the groups in the coalition.

The wildlife group said, however, that additional reforms are needed to make sure the program is fiscally and environmentally sound. “Healthy wetlands and floodplains are the best flood protection money can buy. The NFIP needs to recognize the value of these natural defenses and incentive better land use planning and the mitigation of flood risks,” said Saks.

The bill is “good but not perfect,” said Eli Lehrer the Heartland Institute, also a member of SaferSmarter.org.”I’m glad that it moves rates towards adequacy but disappointed that it delays mapping, adds needless coverage, and fails to address long-term problems that the program faces. Now the Senate has to follow the House’s lead and pass a bill that’s at least as strong and as good.”

The NFIP handles about 5.6 million policies.

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