Can lawmakers reach a bipartisan agreement before the program expires on September 30th?
Faced with a September 30th deadline for renewal, Capitol Hill lawmakers on both side of the aisle have advanced proposals to shore up the National Flood Insurance Program (NFIP). The proposals hope to bolster the solvency and effectiveness of the program by increasing private sector participation, improving mitigation efforts in individual communities, making policies affordable for low-income property owners, updating flood maps, and streamlining claims handling. Advocates contend these actions could ultimately erase the $25 billion debt the NFIP owes to the Treasury.
In the House of Representatives, Rep. Sean Duffy (R-WI) released his draft of a bill this spring to remake the NFIP, which is overseen by the Federal Emergency Management Agency (FEMA). Concurrently, a bipartisan proposal endorsed by Sens. Bill Cassidy (R-LA) and Kirsten Gillibrand (D-NY) has been circulated in the upper chamber. The senate bill would reauthorize the NFIP for 10 years.
Resolution on renewing and reshaping the NFIP is vital for policyholders and insurers alike. Ending the program by failing to extend it would halt the issuance of new flood insurance policies (although current contracts would still be valid). The legislation also has implications that stretch beyond the insurance market into real estate. Without flood insurance, construction in flood-prone areas across the nation couldn’t continue.
Rep. Duffy’s proposal lists several plans to address the program’s financial footing. Chief among those ideas is a mandate that FEMA undergoes an annual independent actuarial study to document its fiscal status based on long-term estimated losses. Duffy’s bill further encourages the NFIP to transfer a portion of its risk from taxpayers to the insurance marketplace through reinsurance (a measure which FEMA has already employed), catastrophe bonds, and other insurance-linked securities. Duffy also recommends the National Flood Insurance Reserve Fund assessment rate be increased by 1% annually until the NFIP reaches a reserve ratio of not less than 7.5%, as is mandated by law.
Regarding affordability, under Duffy’s legislation, annual allowable rate increases would be lowered from 18% to 15% and the chargeable risk premium on a single-family residence would be limited to $10,000 a year. In addition, states would be given the option of establishing programs to help property owners afford their risk premium based on family income. States could, for example, cap yearly premium hikes or the amount of chargeable risk premium paid.
To encourage private market participation, Duffy’s proposal would permit Write Your Own (WYO) private insurers that partner with the NFIP for a share of the premiums to independently write private flood insurance policies. Moreover, WYO program insurers’ allowances would be set at 25% of the chargeable premium.
Other components of the Wisconsin lawmaker’s draft deal with measures to update flood zone maps; initiatives to push communities to lessen flood damage; and upgrades to claim handling procedures to speed up payments, penalize fraud, and streamline appeals. Duffy’s bill addresses properties hit with multiple flood claims as well. For instance, a property with claims payouts twice its replacement value would be barred from NFIP coverage. States and local communities would also be given funds to acquire repeatedly flood-damaged properties from low-income homeowners.
Now Comes the Hard Part
While there appears to be bipartisan sentiment to revise and continue the NFIP, the final legislation will surely undergo changes as it moves through the House and the Senate. Lawmakers will debate how to make the program sustainable while also offering affordable coverage to homeowners vulnerable to floods. And as an article in USA Today points out, the House and Senate versions differ in some important aspects. The Cassidy/Gillibrand bill provides vouchers for low-income homeowners to be able to pay premiums, a provision the House bill does not include.
Also, Congress only has about 50 days to act on the bill before it expires, which may not be enough time to construct such a complex piece of legislation. Even if the bill does pass the House and Senate, it remains unclear if President Donald Trump will sign it.
Yet most observers foresee Congress resolving those issues and keeping the program intact, albeit in a different form. As Rob Moore, Senior Policy Analyst with the National Resources Defense Council, told Bloomberg, “Flood insurance seems to be one of those few areas where Democrats and Republicans see the same problems and, in a lot of instances, see the same solutions.”
As for your clients with properties in flood-prone areas, the best solution is to ensure they maintain insurance. The cost is well worth it in the event of a destructive flood.