RL34367 - Side-by-side Comparison of Flood Insurance Reform Legislation in the 110th Congress
24-Jun-2008; Rawle O. King; 23 p.
Update: Previous Releases:
June 24, 2008
Abstract: In 1968, Congress established the National Flood Insurance Program (NFIP) in response to severe flooding following a series of hurricanes in 1963, 1964, and 1965. The key policy objectives of the NFIP were threefold: (1) reduce the nation’s flood risk through floodplain management; (2) improve flood hazard data and risk assessment by mapping the nation’s floodplains; and (3) make affordable flood insurance widely available in communities that adopt and enforce measures to make future construction safer from flooding. Fiscally, the program had been selfsupporting from the mid-1980s until the 2005 hurricanes. These storms exposed serious weaknesses, which Congress is attempting to address in an effort to return the NFIP to financial soundness.
In the aftermath of the 2005 hurricanes, the NFIP faced unprecedented financial and regulatory strains. The program had to borrow $17.535 billion from the U.S. Treasury in order to pay claims and expenses. Those concerned about program challenges in the wake of the 2005 storms cite the increasing need to borrow from the U.S. Treasury, substantial premium discounts or cross-subsidies among classes of policyholders, outdated flood insurance rate maps, allegations of uneven compliance with mandatory purchase requirements, and questions as to the performance and efficiency of private insurers operating under the NFIP’s Write Your Own program.
Policymakers are now examining ways to strengthen the NFIP. On July 19, 2007, Representative Maxine Waters introduced H.R. 3121 to restore the financial solvency of the national flood insurance program. Chairman Barney Frank had introduced H.R. 1682, an earlier version of H.R. 3121, on March 26, 2007. H.R. 3121 is designed to make the program satisfy traditional criteria for actuarial soundness by phasing in actuarial premiums for owners of certain commercial properties and some residential properties that are not the owners’ primary residence. H.R. 3121 would also: (1) raise civil penalties on federally regulated lenders who fail to enforce mandatory purchase of flood insurance for mortgage holders; (2) increase program participation incentives; (3) add coverage for wind as well as water damage; and (4) encourage revisions to flood maps. H.R. 3121 passed the House on September 27, 2007.
On May 13, 2008, the Senate approved S. 2284, a flood insurance reform bill designed to increase the amount of premiums collected to meet the cost of expected claims under the NFIP. S. 2284 is substantially similar to H.R. 3121, except that the Senate legislation would forgive the program’s outstanding debt to the Treasury and exclude coverage for wind damages.
Some stakeholder groups have expressed concerns about making abrupt changes to the NFIP, particularly phasing out the subsidized premiums. They point to a need for flood insurance reform but say changes should be made in the broader context of program reauthorization. NFIP authority expires September 30, 2008.
This report will be updated as events warrant.