House of Representatives Approves Flood Insurance Reform
October 1, 2007
The U.S. House of Representatives passed H.R. 3121, the Flood Insurance Reform and Modernization Act of 2007, by a vote of 263 to 146. The legislation reauthorizes the National Flood Insurance Program (NFIP), provides for reforms to the NFIP, improves flood mapping, and expands the NFIP to provide for multiple peril coverage. The bill reauthorizes the NFIP for five years through 2013 (the current authorization for the NFIP expires September 30, 2008) and ensures its continued viability by encouraging broader participation, increasing financial accountability, eliminating unnecessary rate subsidies, and updating the flood insurance program to meet the needs of the 21st century.
“Flood insurance reforms are needed because, as we have seen, storms will become stronger and more intense, and we need a program that can contend with the worst that Mother Nature can throw at us,” said Rep. Maxine Waters (D-CA), Chairwoman of the Financial Services Subcommittee on Housing and Community Opportunity and sponsor of H.R. 3121. “Simply put, we cannot let another hurricane season pass without putting the National Flood Insurance Program on solid footing.”
“Passage of this legislation will ensure that in future disasters homeowners won’t have to hire lawyers, engineers, and public adjusters to prove what damage was caused by wind and what was caused by flooding,” said Rep. Gene Taylor (D-LA), a co-sponsor of the bill.
“We have made significant improvements in the National Flood Insurance Program to ensure its continued viability to serve people, and to limit taxpayer exposure to the program and provide for actuarial soundness, said House Financial Services Chairman Barney Frank (D-MA). “I want to particularly commend Congressman Gene Taylor for his tireless work in passing a budget neutral wind insurance program—a problem that was exposed by the 2005 hurricane season.”
In an effort to make the NFIP more actuarially sound, the bill phases out subsidized rates on commercial properties, vacation homes, and second homes built before 1974. Multifamily rental properties are excluded from the phase-out of the subsidy.
Additional optional policy coverage is added, allowing business owners to purchase business interruption coverage at actuarial rates to better prepare them to meet payroll and other obligations during the next big storm. Additionally, optional coverage at actuarial rates for basement improvements and replacement cost of contents is added. For the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties.
The bill requires FEMA to conduct a thorough review of the nation’s flood maps. The bill makes the updating and modernization of flood maps an ongoing process, and increases funding for mapping. The bill also authorizes the Technical Mapping Advisory Council made up of industry professionals to advise FEMA on flood mapping.
Provisions protecting policy holders include clarification of disclosures about flood insurance availability and plain language information on flood insurance policies. Landlords must notify tenants of contents coverage availability. Further, the bill makes flood insurance effective immediately upon purchase of a home.
To encourage participation in the NFIP, the bill provides for a new community outreach program, and provides for a study of how to increase participation by low-income families. In order to help ensure that those homeowners who should have flood insurance do have flood insurance, the bill increases the fines on lenders who do not enforce the mandatory flood insurance policy purchase requirement for those who live in a floodplain and hold a Federally-backed mortgage.
H.R. 1852 also requires FEMA to report to Congress annually on the financial status of the NFIP, increases the amount FEMA can raise policy rates in any given year from 10 percent to 15 percent, and authorizes funding for additional staff at FEMA to carry out the requirements of this bill.
In addition, Chairman Frank offered a manager’s amendment today striking the provision in the bill increasing the NFIP borrowing authority by $725 million. The amendment, as adopted, will bring the bill into compliance with PAYGO. The NFIP does not need the borrowing authority increase to pay claims. The NFIP currently has approximately $3 billion in borrowing authority.
H.R. 3121 was reported by the Financial Services Committee to the full House on July 26, 2007.