The National Association of Realtors (NAR) and a coalition of other commercial real estate trade groups have sent the Senate Banking Committee a letter detailing ways in which the National Flood Insurance Program (NFIP) can be improved to be more responsive and effective for commercial real estate.

The Senate Banking Committee is working on drafting reauthorizing legislation for the NFIP, which is set to expire on Sept. 30. 

The letter details six suggestions:

• Maintain the commercial “opt-out” provision, as passed by the House Financial services Committee in H.R. 2246, the Taxpayer Exposure Mitigation Act;
• Include optional business interruption coverage;
• Allow for multiple structures to be covered under a single policy;
• Help FEMA develop more accurate mapping;
• Develop more effective pre-flood mitigation options for commercial real estate; and
• Allow for replacement cost value, instead of actual cash value, for commercial and multifamily structures.

Within the letter, the groups state that the “opt-out” provision would remove the federal mandatory purchase requirement for commercial and multifamily properties while retaining the NFIP program as an option for commercial and multifamily property owners who choose to obtain coverage through the NFIP or cannot access coverage through the private markets.

“Removing the federal mandatory purchase requirement has the potential to allow both commercial and multifamily property owners to secure access to flood coverage that better fits their needs through more flexible coverage terms,” the letter stated.

The groups stated that adding the option for commercial or multifamily buildings to purchase up to $100,000 in business interruption coverage through the NFIP would provide property owners with the peace of mind that they would be able to focus on getting their businesses up and running and their residents back into their properties immediately following a flood. 

As for adding multiple structure coverage under one policy, the groups argued the following: “A small business, apartment community or other commercial property may have several buildings across different lots or several structures on one property.  In either case, the property owner must obtain one NFIP policy for each building even if the flood risk does not vary among them. This is complicated and costly, and the NFIP should permit multiple buildings to be covered under one policy as is typical in the private market.” 

The letter said that the NFIP Mapping Fairness Act of 2017 can use some further improvements.

According to the letter: “To accomplish accurate maps with a more workable appeals process for property owners, the Federal Emergency Management Administration (FEMA) should adopt the recommendations of the Technical Mapping Advisory Council, including: Moving toward structure-specific flood maps to improve their accuracy upfront and minimize the number of Letter of Map Amendments (LOMAs); taking advantage of mapping advances like Light Detection and Ranging (LiDAR) so policyholders can complete one LOMA for many buildings using a single elevation certificate; several states, like Minnesota, have effectively demonstrated this approach and are collecting LOMAs for whole neighborhoods at once rather than surveying property by property; expanding the pilot studies to provide mass LOMAs (one LOMA for many buildings, as FEMA has supported); and lessening the financial and bureaucratic appeals process faced by communities and property owners.”

The groups added that the Flood Risk Mitigation Act of 2017 provides for changes to the NFIP mitigation programs and policies for residential properties, but fails to address the needs of commercial and multifamily structures. 

The groups argued that FEMA guidance and grant proposals should include a wider set of mitigation strategies that are appropriate for these structures and reflected in the insurance rate tables.

Specifically, the groups said the guidance and grant programs should do the following:

• Expressly authorize small businesses and apartment firms with pre-FIRM commercial buildings to access FEMA mitigation grant programs;
• Allow commercial and multifamily building owners access to mitigation grant dollars before a property floods, when mitigation is most cost effective and dollars go further;
• Expand upon existing FEMA guidance for commercial and multifamily property owners that cannot benefit from traditional mitigation techniques such as building elevation and ensure that recommendations put forward provide a clear return on investment via NFIP rate reductions;
• Raise the amount of the Increased Cost of Compliance (ICC) coverage in the NFIP policy for commercial and multifamily properties to $125,000 and remove the additional coverage from the $500,000 structural limit; again, commercial and multifamily building owners are willing to pay for optional coverage above the base level/rate for an actuarial price; and
• Expand ICC and Flood Mitigation Assistance mitigation programs to include nontraditional mitigation that is appropriate for commercial and multifamily buildings.

Lastly, the groups detailed suggestions for replacing cost value, instead of actual cash value, for commercial and multifamily structures.

“Commercial and multifamily property owners pay for coverage as homeowners do, but only receive the actual cash value – i.e., the replacement value minus depreciation – for both the structure and contents.  Adding NFIP options for full replacement coverage could help level the playing field between large and small business, and encourage more property owners and renters to purchase flood insurance where there is not a federal requirement,” the letter stated.

The other groups to sign onto the letter included: Building Owners and Managers Association (BOMA) International; CCIM Institute; Council for Affordable and Rural Housing; Institute of Real Estate Management; International Council of Shopping Centers; Mortgage Bankers Association; NAIOP, The Commercial Real Estate Development Association; National Affordable Housing Management Association; National Apartment Association; National Association of Housing Cooperatives; National Association of Real Estate Investment Trusts; National Multifamily Housing Council; and The Real Estate Roundtable.