House Panel Clears Flood Bill
|March 17, 2006|
The House Committee on Financial Services, chaired by Rep. Michael G. Oxley (OH), approved the following legislation by a voice vote today in a full Committee markup:
H.R. 4973, the Flood Insurance Reform and Modernization (FIRM) Act of 2006
Introduced today by Capital Markets Subcommittee Chairman Richard H. Baker (LA) and Ranking Member Barney Frank, the legislation would build on reforms that the Committee began with the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 in an attempt to ensure the continued viability of the program.
The National Flood Insurance Program (NFIP) was created as part of the National Flood Insurance Act of 1968 to enable the federal government to help cover the cost of flood damages. Prior to that time, insurance companies generally did not offer coverage for flood disasters because of the high risks involved. The legislation as amended in 1973 and 1994 authorizes the Federal Insurance Administration (FIA) and Mitigation Directorate to administer the NFIP as part of the Federal Emergency Management Agency (FEMA). Although FEMA has now been absorbed into the Department of Homeland Security, the NFIP continues to operate as it had before restructuring.
Chairman Oxley said, “While the 2004 reauthorization of the NFIP went a long way in reforming the program, the destruction caused by Katrina, Rita, and Wilma has amplified its weaknesses and brought them to our doorstep once again. It is critical that we take the next step forward, reform the program, and find out why there are so many stumbling blocks to the success of the NFIP.”
Since 1986, the NFIP has been financially self-supporting for the average historical loss year. Consistent with statute, the NFIP borrowed from the U.S. Treasury during those years in which the nation experienced unusually high flood losses. These loans were repaid to the Treasury, with interest, from policyholder premiums and related fees. FEMA is legally obligated to pay claims arising from flood events where policies are in place. Should the NFIP run out of money needed to pay the estimated 225,000 Hurricanes Katrina and Rita-related claims, homeowners whose claims are not paid could initiate legal action against FEMA.
Rep. Baker said, "Today's committee action is of vital importance for helping to make sure pending claims get paid and money gets into the hands of business and home owners anxious to rebuild. Just as important, this legislation ushers in common-sense reforms to strengthen the flood insurance program by making it more responsive to the real needs of property owners, more responsible to taxpayers, and more financially sound going forward."
National Flood Insurance Program claims liabilities arising from Hurricanes Katrina and Rita are estimated at over $24 billion dollars, far surpassing the total claims paid in the entire history of the NFIP. The NFIP’s borrowing authority was increased last year from $1.5 billion to $3.5 billion, and then again to $18.5 billion. On February 15 the House amended S. 2275, which would further increase the borrowing authority to $20.8 billion. That legislation is currently pending in the Senate. In the meantime, FEMA projects that their funds to pay claims will run out at some point during the next few weeks. If Congress does not authorize additional funds before that time, FEMA will direct the insurance companies that facilitate claims payments to stop paying these claims.
Housing and Community Opportunity Subcommittee Chairman Robert W. Ney (OH) said, “Today’s markup again demonstrates that this Committee recognizes that the Federal government has an obligation to meet its commitment to American homeowners and business owners who paid annual premiums into the National Flood Insurance Program. In addition, this bipartisan bill addresses significant reforms to enhance accountability and ensure the viability of the program for all policyholders across the country.”
The legislation would:
The following amendments were agreed to by voice votes:
An amendment offered by Rep. Debbie Wasserman Schultz (FL), would require FEMA to participate in non-binding state mediation proceedings
An amendment offered by Ranking Member Barney Frank (MA), would expedite the notification and publication of flood elevation procedures after flood-related disasters.
An amendment offered Rep. Gary G. Miller (CA), would cap the penalties against lenders who are required to ensure homeowners have flood insurance. It also provides for a good faith exemption to ensure lenders are not unfairly penalized due to administrative errors.
An amendment offered by Rep. Scott Garrett (NJ), would amend the report language in the bill to also consider the constitutionality of requiring home owners who do not have a federally backed mortgage to participate in the National Flood Insurance Program.
Source: House Financial Services Committee