Last week the full House passed H.R. 2874, the 21st Century Flood Reform Act, which is a package of seven bills passed by the Financial Services Committee to reform and reauthorize the National Flood Insurance Program (NFIP).
The bill passed by a 237-189 margin and now heads to the Senate.
The NFIP was created in 1968 to provide government insurance protection against flood risks for both homeowners and commercial businesses. The 21st Century Flood Reform Act would reauthorize the NFIP for five years, introduce private market competition, and provide programmatic reforms to help policyholders. Its reform has been a priority for Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas).
“There are a lot of good reforms in this bill for both taxpayers and ratepayers,” Hensarling said in a release after the passage. “It is an absolutely revolutionary reform that we can break open the government monopoly and bring in market competition, innovation, more affordable rates for so many.
“One of the great tragedies that I saw in my native state of Texas, in Houston was how few people actually took up flood insurance,” he said. “If we had competition, if we had advertising, if people could roll that into their homeowners’ rates, how many more people would have been protected from the ravages of these hurricanes?”
According to a release from the Financial Services Committee, the 21st Century Flood Reform Act will:
- Provide affordable NFIP coverage for current policyholders.
- Expedite the implementation of policyholder monthly installment payment of premiums.
- Establish a flood damage savings account for individual policyholders to facilitate either the reduction or elimination of NFIP premiums.
- Improve safety by modernizing FEMA’s approach to designating and addressing multiple-loss properties.
- Include the Ross-Castor Flood Insurance Market Parity and Modernization Act (H.R. 1422) to provide greater private market access, competition and consumer choice.
- Allow localities, who elect to use their own resources, to develop their own map alternatives to NFIP flood maps using better and cost-effective technology at an accelerated pace, subject to FEMA standards and approval.
- Require consideration of unique characteristics of coastal and local inland properties that are oftentimes over-charged.
- Require, for the first time, FEMA to conduct an annual independent actuarial study of the NFIP fund to determine whether the government program is collecting revenue sufficient to cover its long-term expected losses.
- Require the Administrator to use risk transfer tools, such as reinsurance or catastrophe bonds, to reduce direct taxpayer exposure to insurance losses.
- Formalize an appeals process that was established for consumers when they dispute their claims.
- Improve disclosure requirements for standard flood insurance policies.
“We have to realize if we’re going to make this program sustainable we cannot have 1 percent of the properties causing 25 percent of the losses,” Hensarling said. “Ultimately, if all we do is rebuild the same properties in the same fashion in the same location, that is neither wise nor compassionate.”
The bill’s passage got immediate support from the National Association of Realtors (NAR). NAR had made NFIP reform a priority.
“Realtors know first-hand what happens when the NFIP expires, and it isn’t good for consumers, businesses or our communities,” NAR President Elizabeth Mendenhall said in a release. “We appreciate the leadership that members of Congress have shown passing sound reforms, which will strengthen the program, protect property owners and deliver good results for taxpayers.
“The conversation happening in Washington on this issue is fundamentally about how we deliver the best results for consumers and taxpayers, and that’s a good conversation to have,” Mendenhall said. “Realtors are simply asking that Congress swiftly deliver on the promise of this program so buyers can move forward without interruption and homeowners know their most important asset is protected.”
The bill also got support from Mortgage Bankers Association President and CEO David Stevens.
“I want to commend the House of Representatives for passing H.R. 2874 which will reauthorize the National Flood Insurance Program,” Stevens said. “This long-term reauthorization will provide certainty to homeowners and businesses that depend on the program for flood damage protection. Additionally, this legislation contains important provisions related to the clarification and expansion of the private flood insurance market. … MBA now urges the Senate to finalize its ongoing flood insurance negotiations and act before the Dec. 8 expiration of the temporary NFIP extension.”