In early July, our president signed legislation that resurrected the National Flood Insurance Program’s authorization, bringing to an end a longtime political stalemate. This new reauthorization will last until September 30, 2017.Since 2004, this is the first time that a signing has put into effect a new reauthorization for the NFIP. It also brings to an end a debate, begun in 2007, in the House that had to do with a replacement for legislation that reauthorized the NFIP in 2003.
Officials from the House Financial Service Committee took a look at the NFIP and found that its authorization was extended 17 times for short periods of time since it lost its authorization on September 30, 2008. On top of that, the NFIP’s authorization became temporarily lost 4 times, mostly in 2011. The end result of that was a 53-day postponement for closings of sold homes that were located in communities where flood insurance is required.
This current reauthorization is part of a transportation bill and is under the name ‘Title II of H.R. 4348, the Surface Transportation Extension Act of 2012’. Under this bill, FEMA will be allowed to raise rates as much as 20% per year, compared to 10% per year under the previous program. There is also a mandate that, over the next 5 years, people with second homes, commercial property and properties with multiple flood claims will increase by 20%. This will raise them to fees that are actuarially-adjusted. FEMA will also be able to purchase private reinsurance to support their program instead of having to rely on funds from Treasury loans. According to the Congressional Budget Office, these changes could help generate additional revenues of $2.7 billion over the next ten years.
Jimi Grande, the senior VP of the National Association of Mutual Insurance Companies’ federal and political affairs seems to be in favor saying, “At long last our government has signed into law meaningful NFIP reform”. He also made note of the fact that the core legislation had been able to pass the House Financial Services Committee's Insurance Subcommittee over one year ago. He "ensures that Americans have access to flood insurance, and just as important, that the NFIP will begin to charge adequate rates" and that the bill "should place the NFIP on the path to a more sound fiscal footing."
Added to that are statements from Tom Litjen, who is the Property Casualty Insurers Association of America's VP of federal government relations. He believes that the signing "is a momentous occasion" and that "this legislation will bring much needed certainty to flood-prone communities and greater stability for the housing market."
Robert Rusbuldt, President and CEO of the Independent Insurance Agents and Brokers of America, has commended our president and Congress for working together on this. He says, "The IIABA looks forward to the implementation of the many provisions that will help put the program on more solid financial footing."
But, even though some are relieved at the news of the NFIP's long-term certainty, there are some officials in the industry that have some concerns regarding two parts of the bill. The first is a provision that has been removed that required homeowners to buy insurance if they lived behind a levee and/or other structures built for flood control. The second is a provision that would, over the next four years, take the rates of vacation properties and second homes and increase them to market level.
The concern regarding homes and businesses located behind levees is that they would not have to pay for the program, which could cause a reduction in revenues. The reasoning behind the second concern is that owners of second homes and vacation properties may make the decision to instead purchase private insurance. Both of these have a high likelihood of denying the NFIP of needed income and could throw off the Congressional Budget Office's calculations used to predict higher incomes via the program's reforms.
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