NLBMDA: Congress Tackles Flood Insurance

In the coming months, both the House and Senate may consider legislation reforming the National Flood Insurance Program.

In the coming months, both the House and Senate may consider legislation reforming the National Flood Insurance Program (NFIP). New efforts to reform the program are in response to passage in 2012 of the Biggert- Waters Flood Insurance Reform Act (Biggert-Waters Act). Implementation of the Biggert-Waters Act has raised serious concerns about dramatic flood insurance premium increases, and how the Federal Emergency Management Agency (FEMA) is managing changes to the Flood Insurance Rate Maps (FIRM). Ironically, the Bigger-Waters Act was meant to stabilize the NFIP, but some homeowners have seen their insurance premiums skyrocket under the program. These rate increases have also negatively affected the sale, construction, and remodeling of homes in communities across the country.

Evolution of the Program

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The NFIP was created in 1968 because private flood insurance was unavailable in some communities. The FEMAmanaged program has three mandates: to provide flood insurance, to improve floodplain management, and to develop maps of flood hazard zones.

NFIP allows homeowners in participating communities to buy insurance to protect against flood losses. The program is an insurance alternative to disaster assistance and reduces the cost to repair flood damaged homes and their contents.

A homeowner is able to purchase excess flood insurance, but they must be covered by NFIP flood insurance first.

In recent years, NFIP has seen its debt grow more than $20 billion, and the Biggert-Waters Act was intended to make the program more financially stable by raising rates to reflect true flood risk and change the maps used to determine insurance premiums.

Currently, NFIP provides coverage to 5.6 million policyholders. Most property owners insured through NFIP already pay full-risk rates, but approximately 20% of policyholders receive subsidized rates, which averages between 40-45% of the actuarial premium. Those rates tend to apply to structures built prior to 1974 or before the first flood risk maps were established for communities.

Critics of the Biggert-Waters Act point out that FEMA has failed by greatly underestimating the premium increases associated with the law and by creating new maps that do not take into account various local flood control structures, which unnecessarily places policyholders into higher rate zones. The outcry for changes to the program increased last October when property owners in highrisk areas paid the first 25% increase in annual premiums that will continue until rates reflect the true risk.

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