Congress Gets Closer to National Flood Insurance Program Reform

February 23, 2017

The National Flood Insurance Program (NFIP) is once again a focus of the United States Congress, as new legislation meant to both renew it and reform it moved to the Senate floor last Friday, after it was passed unanimously by the Senate Banking Committee.

After a brief markup hearing, the Senate passed the bipartisan bill via voice vote, though there was some deferment of action on proposals and a few changes to the verbiage of the legislation.

As it stands now, the NFIP is authorized through September 30, 2011. Especially since the widespread damage caused by Hurricane Irene, however, it is obvious to Senators on both sides of the aisle that this program cannot be allowed to lapse. Both Democrats and Republicans in the Senate pointed to shutdowns in the program last year, which adversely affected home sales and left policyholders feeling insecure.

As Senate Banking Committee Chairman Tim Johnson (D-South Dakota) said, “Flooding is a nationwide peril.”

Representatives of the insurance industry hope that the full Senate will pass the bill after a quick vote, and then move it to the House of Representatives, where it is expected that any compromises should be worked out fairly swiftly. Nevertheless, some Senators, including David Vitter (R-Louisiana) believe that a short-term extension to NFIP might be necessary, to give Congress time to complete its work.

The legislation in question is the Flood Insurance Reform and Modernization Act of 2011, and it will extend the NFIP for five years. It’s been compared to a similar bill that passed the house last July with a 406-22 vote, that included market-based changes and a phase-in of limits on subsidies and actuarially-supported rates.

Though the Senate and House seem to be on the same page where the new legislation is concerned, there are a few differences. For example, the Senate’s version allows for premium increases of up to 15% a year, which is higher than the currently-allowed 10% annual increases, but still lower than the House’s proposed number of 20%.

The Senate version of the bill also includes the creation of a National Commission on Natural Catastrophe Risk which would be tasked with analyzing the risks posed by natural disasters, and learning how to mitigate them. On the other hand, the Senate’s bill is absent a provision that the House version includes, which would “depopulate” the program, limiting the number of policies that the NFIP directly administers to a maximum of 10% of all flood policies.

As well, the Senate’s legislation no longer includes a provision that would have erased the NFIP’s roughly $18 billion debut to the U.S. Treasury, much of which was caused by the effects of 2005’s storms, including Hurricane Katrina. The House version does not directly address this debt.