House Moves to Vote on Flood Insurance Reform

Last night, the House of Representatives Rules Committee by record vote (8-2) moved to report HR 2874, as amended, to the House floor.  A vote on the bill will likely be held today. A late night amendment struck a provision of the bill that prohibited new structures valued over a $1 million, built in high-risk flood areas, from purchasing federal flood insurance (Sec. 506). This provision would have helped prevent those properties from becoming a future burden to the program, and was a concept supported by NRDC. Several other proposed amendments were not accepted for debate.  

Reform of the deeply indebted National Flood Insurance Program (NFIP) must occur before the program expires on December 8^th. The recent spate of hurricanes that devastated Texas, Florida, Puerto Rico and the US Virgin Islands have underscored the need to stabilize the flood insurance program. While the NFIP was established to help manage the nation’s flood risks, the program has often had the opposite effect, perpetuating a cycle of flooding and rebuilding for 100,000s of homeowners. With the right reforms, Congress could change that dynamic and ensure the NFIP lives up to its intended purpose “to reduce or avoid future flood losses.”

The US House of Representatives is preparing to vote on a bill that would reauthorize the NFIP before the program expires. The proposed bill is a mixture of positive and negative changes to the flood insurance program, as described below.

To truly rehabilitate the NFIP, more than is in this legislation needs to be done to address the rising risk of flooding that many Americans face. The NFIP must be reformed to help homeowners mitigate their flood risks―not just rebuild―to truly reduce the financial exposure of the program and taxpayers.  For the most at-risk properties, providing owners the option of a voluntary buyout, instead of repeated rebuilding, can be a better option for both the homeowner and the program. (For a detailed discussion see: Seeking Higher Ground: How to Break the Cycle of Repeated Flooding with Climate-Smart Flood Insurance Reforms)

The Good, the Bad, and the In-Need of Tweaking of HR 2874 (as amended).

The Good

The proposed bill contains numerous changes that would positively reform the NFIP.  NRDC is supportive of the following:

• Providing homeowners a “right to know” about their property’s history of NFIP claim payments and flood damages, including under previous owners. The greater the access to information about a property’s flood risk could spur mitigation actions, thus reducing the fiscal exposure of the program. (Section 108) [Sponsored by Congressman Sean Duffy].
• Directing FEMA to create a public, open-data system to share information related to a community or region’s flood risk, such as current and historical policy information, the total number of multiple-loss properties in a community, and whether a community was in compliance with the NFIP. A major shortcoming of the NFIP is the lack of transparency.  This hinders academics, the public, and even members of Congress from truly understanding how the program operates, the issues that arise, and where the program needs improvement. Making this information publicly available will help with future reform efforts. (Sec. 204) [Sponsored by Congressman Sean Duffy].
• Requiring sellers or lessors of a house to disclose past flood damages to potential buyers and lessees prior to the purchase or leasing of the property. This proposal would have an impact nationwide as states would be required to enact sufficient flood disclosure laws in order to remain in NFIP. (Sec. 109) [Sponsored by Congressman Ed Royce].
• Mandating NFIP-participating communities to identify areas within the community repeatedly damaged by floods, and to develop plans to mitigate that risk. (Sec. 402) [Sponsored by Congressmen Ed Royce and Earl Blumenauer].
• Prohibiting new structures valued over a $1 million built in high-risk flood areas from purchasing federal flood insurance to prevent those properties from becoming a future burden to the program. (Sec. 506) [Sponsored by Congressman Jeb Hensarling].​
  • Yesterday, this provision of the bill was struck by an amendment. NRDC supported the prohibition on NFIP coverage for structures with high-value replacement costs as such a prohibition would have strengthened the fiscal soundness of the program.    

The Bad

However, the proposed bill also contains changes that would undercut the financial stability of the NFIP and its ability to be a true flood risk-management program.  NRDC has reservations with the following:

• Capping, arbitrarily, NFIP premiums at $10,000, regardless of the risk, or the size of the property to be insured. Risk-based rates are meant to do one thing, reflect the true risk of flooding a property faces. (Sec. 112).
• Permitting communities to develop their own official NFIP flood maps with minimal public input or, more importantly, adequate oversight from FEMA creates a perverse incentive to represent the high-risk flood hazard area as small as possible so as not to negatively impact development. A recent report from the Department of Homeland Security’s Inspector General found serious fault with FEMA’s current mapping program, in large part due to unreliable flood risk information provided by communities and FEMA’s lack of capacity to properly oversee the development of such information. (Sec. 306).
• Eliminating the non-compete requirement for Write Your Own (WYO) insurance companies, which would provide these companies an unfair advantage in selling insurance policies to the public. WYO insurance companies currently act as the middle-man for FEMA to help sell NFIP policies. Further, WYO insurance companies, as detailed in a recent broadcast of Last Week Tonight with John Oliver, make enormous profits off the selling of NFIP policies and processing claims, money that could be going to reduce the debt of the NFIP. The percentage WYO insurance companies charge FEMA must be capped well below the 27.9% cap proposed that has no limits on the amount these companies are allowed to charge for processing claims. (Secs. 203 and 507).

The In-Need of Tweaking

One of the biggest changes to the NFIP is a provision that makes it easier for private insurers to sell flood insurance, which would shift more of the risks for flooding from the federal government to the private sector. These private insurers would be able to sell policies that comply with federal mortgage rules that require all floodplain properties to have flood insurance.  Right now, that requirement is most easily met by getting coverage through the NFIP.

NRDC supports this shift, expecting that more property owners will be likely to get coverage than currently have it. But it must be done in a way that ensures that other aspects of the NFIP are not undermined  Private insurance policies must be “as broad as” the current NFIP policies. Also, the NFIP is more than an insurance program, it also provides floodmaps and funding for reducing homeowners flood risks – activities that rely on fees collected on NFIP policies and premiums. Private insurers must collect equivalent fees and provide the money to FEMA so these critical programs will get the financial support they need. Communities across the country benefit from these programs no matter from whom their residents buy flood insurance.   

The Status-Quo Is Not an Option

The federal flood insurance program cannot handle the floods of today, let alone the floods of tomorrow, which are likely to be more severe due to sea level rise and more extreme rain storms. Continuing the business-as-usual approach regarding the NFIP is clearly not sustainable. Congress recently had to forgive $16 billion in debt to ensure the program could continue to function and pay out claims from the recent hurricanes. As flooding becomes more frequent, the program needs to move beyond rebuilding people in the same vulnerable way and in same vulnerable location, and instead assist them to mitigate their flood risk, including moving to safer ground.