Summer Brings Storm Concerns and Flood Insurance Uncertainty

Unfortunately, this year’s hurricane season begins with the prospect of the National Flood Insurance Program (NFIP) expiring soon. Despite numerous efforts, Congress has not passed a NFIP reform bill containing a long-term extension of the program. As a result, a series of short-term NFIP extensions have kept the program going, the most recent of which was passed as part of an appropriations bill in March. That extension continues the NFIP until July 31, after which it will lapse unless Congress acts to extend it again before the deadline.

A long-term NFIP extension has proven difficult to achieve, as have numerous other NFIP reform efforts. Last June, the House Financial Services Committee reported out six bills that addressed not only a long-term extension but also a wide array of program reforms. In November, the House considered H.R. 2874, the Twenty-First Century Flood Reform Act. An amendment in form of a substitute bill incorporated language from the other reform bills reported out of the Financial Services Committee. The amended bill passed and was sent to the Senate, where it has languished in the Banking, Housing and Urban Affairs Committee.

In addition to a long-term NFIP extension, H.R. 2874 focuses on six reform topics: (1) policyholder protections (such as limitations on premium rate increases and allowing installment premium payment plans); (2) fostering the development of the private flood insurance market by clarifying the definition of “private flood insurance” that some lenders found to be ambiguous following the passage of the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12); (3) revisions to the flood risk mapping process to address fairness concerns that arose after the passage of BW-12; (4) repeatedly flooded communities by requiring such communities to create, implement and maintain flood mitigation plans; (5) program integrity by creating new mitigation, premium rate, and minimum deductible requirements for some repetitive-loss properties as well as a reduction in the amounts paid as allowances to private sector insurers that sell and service NFIP policies; and (6) new regulation of the claim adjusting process, including financial penalties and criminal prosecution for making false statements in the proving or adjusting of a flood insurance claim.

The sheer breadth of the reforms proposed in H.R. 2874 may limit its chances for passage in the Senate. Some senators may be wary of such a sweeping NFIP reform bill, recalling the fallout from the reforms required by BW-12. Congress pulled back from some of the BW-12 reforms in an “affordability” bill enacted in 2014. Also, senators from different regions have different interests in the NFIP reform efforts. Senators from states exposed to tropical storms or riverine flooding seek wide availability and affordability of NFIP coverage. Senators from states with low flood exposure want the NFIP to become actuarially and financially sound, even if premium rate increases and disqualification of some properties are required to get there.

Meanwhile, the July 31 expiration of the NFIP looms, just before the peak storm period of hurricane season begins in August. With the November midterm elections around the corner, another short-term extension of the program appears likely. If that occurs, the long-term extension and reform of the NFIP will become one of the first orders of business for the 116th Congress when it begins its work in January 2019.