Legislative Proposals for the National Flood Insurance Program

In May, the Department of Homeland Security submitted 17 legislative proposals to Congress to reform FEMA’s National Flood Insurance Program.

Since the NFIP’s last multi-year reauthorization expired on September 30, 2017, the program has had 21 short-term extensions, including three brief hiatuses. Frequent short-term extensions are disruptive and cause existing and potential policyholders to lose faith in the NFIP as the reliable insurance program available to protect their homes and contents from flood risk.

In the Reform Legislative Package, the letter to Congressional leaders included the following four principles to outline the administration’s priorities for the multi-year reauthorization of the NFIP:

• Ensure that more Americans are covered by flood insurance by making insurance more affordable for low- and moderate-income policyholders.
• Building climate resilience by transforming risk communication and providing Americans with tools to manage their flood risk.
• Reduce risk, loss and suffering from disasters by strengthening local minimum floodplain management standards and addressing the properties of extreme repetitive losses.
• Establish a sound and transparent financial framework that allows the NFIP to balance affordability and fiscal soundness.

Summary of proposals

Here is the summary of the National Flood Insurance Program (NFIP) reform proposals that the administration is urging Congress to pass:

Solid financial framework

Risk analysis and communication

Improve resilience

Technical and operational improvements

Sound financial framework (Points 1-3)

• Findings in Support of a Sustainable National Flood Insurance Program – Clarifies the legislative intent that is implicit in the National Flood Insurance Act of 1968 (NFIA) in support of hazard rates comprehensive and other measures to ensure a sound financial framework.
• Borrowing Power – Eliminates interest on future debt and reduces the NFIP’s borrowing power to two-thirds of the total expected premiums in effect in the following fiscal year
• Building Financial Resilience – Allowing cash to quickly pay claims quickly in most situations without future harm is important to the financial solvency of the program. The combination of NFIP resources, risk transfer agreements, and reasonable borrowing authority allows NFIP to manage events down to a 1 in 20 occurrence overrun loss level while more closely aligning risk reserve fund collections.

Risk analysis and communication (Points 4-7)

• Risk-Based Approach for a Modern NFIP – Simplifies and clarifies FEMA’s mapping authority and provides the flexibility to produce regulatory maps and non-regulatory flood and hazard information products flooding to improve national understanding of flood risk that includes future climate projections.
• Disclosure of flood risk information prior to real estate transactions – A significant barrier to addressing the country’s flood risk is the lack of flood risk awareness among buyers and tenants when conducting transactions real estate and rental. This proposal would increase clarity and standardize disclosures by requiring participating communities to establish certain minimum flood risk reporting requirements for sellers and lessors prior to the closing of residential transactions as a condition of participation in the NFIP.
• Use of replacement cost value in determining premium rates – Considers the replacement cost value (RCV) of insured structures when determining premium rates. Using the RCV of insured structures in setting NFIP rates will reduce cross-subsidies and more accurately signal the true risk of insureds.
• Consideration of Coastal and Inland Locations in Determining Premium Rates – Creates separate classes for coastal and inland floodplains in NFIP rate tables.

Improving resilience (articles 8 to 14)

• Multi-Year Reauthorization – Extends the NFIP to September 30, 2031, ensures that this reauthorization is backdated to the date of expiration, if expiring, and ensures that FEMA is able to sell and service policies, even during a credit period.
• Means-Tested Assistance Program – Establishes a means-tested assistance program offering a graduated rebate to current and potential policyholders who meet the Department of Housing and Urban Development’s definition of low- and moderate-income households (income of the household equal to or less than 120% of the median income of the region).
• Excessive Loss Properties – Creates a new category of Excessive Loss Properties (XLPs), defined as structures with four or more paid losses of at least $10,000 each, and prevents FEMA from offering coverage for XLPs. Allows a structure to be removed from an XLP classification if the structure is mitigated in accordance with state and local requirements. Updates definitions of Repeating Loss Structures and Severe Repeating Loss Structures.
• Compliance and Flood Mitigation Coverage – Allows policyholders to purchase higher coverage limits to cover the cost of compliance with floodplain management ordinances or laws.
• Increase Maximum Coverage Limits – Increases NFIP maximum coverage limits for structures and contents and indexes them to Fannie Mae/Freddie Mac compliant loan limits so they can periodically adjust to housing costs.
• Study the Effectiveness of the Mandatory Purchase Requirement – ​​Ask the Government Accountability Office to study how well the NFIP’s mandatory purchase requirement meets Congress’s intent to increase the number of Americans covered by flood insurance, including renters and homeowners in low-income areas.
• Prohibit Coverage for New Construction in High-Risk Areas/Commercial Properties – Prohibits NFIP coverage for new construction in high-risk areas and commercial properties to promote private market growth by creating an inventory of new properties to flood risk for which private insurance companies could compete.

Technical and operational improvements (articles 15 to 17)

• Clarify the period for filing a lawsuit – Requires policyholders to exhaust the administrative appeal process before initiating a lawsuit. Revises the statute of limitations to allow policyholders to sue FEMA no later than 90 days after the date of the appeal decision, rather than the current one-year period after a claim is denied.
• Reduce Reporting Complexity – Reducing reporting complexity for the NFIP means that, over a two-year period, reports due to Congress go from 15 to 4 while providing similar and more timely information.
• Remove Barriers to Switching to Private Policies – Enables flood insurance coverage to meet all continuous coverage requirements imposed by the NFIP.