House passes flood-insurance bill

Mortgage Banking, Nov, 2007

The House approved a bill in late September to reauthorize and reform the National Flood Insurance Program (NFIP), which, among other things, would improve flood mapping and expand the NFIP to provide for multiple-peril coverage.

Passed by a vote of 263 to 146 in the House, the Flood Insurance Reform and Modernization Act of 2007 (H.R. 3121) reauthorizes the NFIP for five years through 2013, which extends the program beyond the current authorization for the NFIP due to expire Sept. 30, 2008.

At press time, the Senate Banking Housing and Urban Affairs Committee also had scheduled a markup of the Flood Insurance Reform and Modernization Act of 2007.

The House bill ensures the NFIP's 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, according to Rep. Maxine Waters (D-California), chairman of the Financial Services Subcommittee on Housing and Community Opportunity, and sponsor of H.R. 3121.

"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 Waters. "Simply put, we cannot let another hurricane season pass without putting the National Flood Insurance Program on solid footing."

Outgoing MBA Chairman John M. Robbins, CMB, praised the House passage of H.R. 3121 for its expanded protection of homeowners, renters and commercial property owners from losses due to floods.

"The availability of affordable and reliable flood insurance can play a crucial role in reducing the overall cost of housing in flood-prone areas. The Gulf [Coast region] hurricanes of 2005 demonstrated some flaws in the current program, and this bill should help close some of those gaps," said Robbins. "It is now incumbent upon the Senate to pass its legislation, and we look forward to working with them to help those efforts," Robbins said.

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 would be added under the bill, 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.

Furthermore, the bill allows optional coverage at actuarial rates for basement improvements and replacement cost of contents. For the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties.

The bill requires the Federal Emergency Management Agency (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. It also authorizes the Technical Mapping Advisory Council, made up of industry professionals, to advise FEMA on flood mapping.

Provisions protecting policyholders 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.

H.R. 3121 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.

The focus now shifts to the Senate. During a Senate Banking Committee hearing in early October, Sen. Charles Schumer (D-New York) noted that he would like to include an optional program offering wind damage in a Senate flood bill.

Committee chairman Christopher Dodd (D-Connecticut) said he will make NFIP reform "a priority" for the committee.

"The National Flood Insurance Program is a critical component in ensuring that after a flood, families can rebuild their homes, their businesses and their lives. But unfortunately, the program is $20 billion in debt due to the 2005 hurricanes," said Dodd. "We must put this program on stronger financial footing, while ensuring that families around the country can afford this critical coverage."

To that end, on Oct. 17 the Senate Banking Committee passed the Flood Insurance Reform and Modernization Act of 2007, which would reauthorize the NFIP for five years.