House Passes Flood Reform Act Legislation

The U.S. House of Representatives recently passed legislation to renew and reform the National Flood Insurance Program (NFIP). The NFIP’s authorization is set to expire on Dec. 9. During debate on the House floor, several Republicans expressed concerned that the bill would impose steep NFIP premium increases on their constituents. Many Democrats echoed these concerns, though 15 Democrats did vote to support the legislation. The legislation ultimately passed the House by a vote of 237 to 189.

In addition to reauthorizing NFIP for five years, H.R. 2874 tightens some of NFIP’s coverage standards in an attempt to improve NFIP’s financial health. Specifically, the bill phases out within four years NFIP coverage for all single-family residential structures (those with one to four units) with estimated replacement costs that exceed $1 million per dwelling unit. This prohibition applies only to properties located in communities with active private flood insurance markets.

The bill also prohibits NFIP from offering new or renewed coverage for any property for which NFIP has paid claims that exceed three times the amount of the property’s replacement value. This prohibition would apply to flood damage that occurs beginning 18 months after the bill is enacted into law. In addition, the bill gradually increases premiums for policyholders who file multiple claims on the same property. This provision now applies to losses realized after the bill goes into effect.

H.R. 2874 also:

• Requires local communities to develop specific flood risk mitigation plans in flood-prone areas (communities with 50 or more multiple loss structures or five or more severe repetitive loss structures);
• Authorizes the Federal Emergency Management Agency (FEMA) to establish a pilot program to provide financial assistance for low-income homeowners and incentivize communities to purchase and acquire properties that have incurred substantial damage from flood events;
• Requires FEMA to conduct an independent actuarial analysis of NFIP each year;
• Raises NFIP’s annual Reserve Fund assessment fee that it collects after every year it doesn’t collect the statutory minimum amount from 15 to percent to 16 percent;
• Mandates that FEMA transfer a portion of NFIP’s risk to private entities through risk-sharing arrangements; and
• Caps compensation for private insurance brokers who sell NFIP policies through the Write-Your-Own (WYO) market at 25 percent of the homeowners’ premiums.

Other provisions in the bill seek to increase private sector participation in the flood insurance market by giving states more flexibility to approve and regulate private flood insurers and allowing WYO insurers to also offer private flood insurance policies. It mandates that FEMA establish an open-source data system that will allow the public to access the information it uses to determine properties’ flood risk. Local communities will be permitted to submit for approval to FEMA their own alternatives to NFIP flood maps. H.R. 2874 will now be referred to the Senate.