House Panel Clears Flood Bill

March 17, 2006

The House Committee on Financial Services, chaired by Rep. Michael G. Oxley (OH), approved the following legislation by a voice vote today in a full Committee markup:

H.R. 4973, the Flood Insurance Reform and Modernization (FIRM) Act of 2006

Introduced today by Capital Markets Subcommittee Chairman Richard H. Baker (LA) and Ranking Member Barney Frank, the legislation would build on reforms that the Committee began with the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 in an attempt to ensure the continued viability of the program.

The National Flood Insurance Program (NFIP) was created as part of the National Flood Insurance Act of 1968 to enable the federal government to help cover the cost of flood damages. Prior to that time, insurance companies generally did not offer coverage for flood disasters because of the high risks involved. The legislation as amended in 1973 and 1994 authorizes the Federal Insurance Administration (FIA) and Mitigation Directorate to administer the NFIP as part of the Federal Emergency Management Agency (FEMA). Although FEMA has now been absorbed into the Department of Homeland Security, the NFIP continues to operate as it had before restructuring.

Chairman Oxley said, “While the 2004 reauthorization of the NFIP went a long way in reforming the program, the destruction caused by Katrina, Rita, and Wilma has amplified its weaknesses and brought them to our doorstep once again. It is critical that we take the next step forward, reform the program, and find out why there are so many stumbling blocks to the success of the NFIP.”

Since 1986, the NFIP has been financially self-supporting for the average historical loss year. Consistent with statute, the NFIP borrowed from the U.S. Treasury during those years in which the nation experienced unusually high flood losses. These loans were repaid to the Treasury, with interest, from policyholder premiums and related fees. FEMA is legally obligated to pay claims arising from flood events where policies are in place. Should the NFIP run out of money needed to pay the estimated 225,000 Hurricanes Katrina and Rita-related claims, homeowners whose claims are not paid could initiate legal action against FEMA.

Rep. Baker said, "Today's committee action is of vital importance for helping to make sure pending claims get paid and money gets into the hands of business and home owners anxious to rebuild. Just as important, this legislation ushers in common-sense reforms to strengthen the flood insurance program by making it more responsive to the real needs of property owners, more responsible to taxpayers, and more financially sound going forward."

National Flood Insurance Program claims liabilities arising from Hurricanes Katrina and Rita are estimated at over $24 billion dollars, far surpassing the total claims paid in the entire history of the NFIP. The NFIP’s borrowing authority was increased last year from $1.5 billion to $3.5 billion, and then again to $18.5 billion. On February 15 the House amended S. 2275, which would further increase the borrowing authority to $20.8 billion. That legislation is currently pending in the Senate. In the meantime, FEMA projects that their funds to pay claims will run out at some point during the next few weeks. If Congress does not authorize additional funds before that time, FEMA will direct the insurance companies that facilitate claims payments to stop paying these claims.

Housing and Community Opportunity Subcommittee Chairman Robert W. Ney (OH) said, “Today’s markup again demonstrates that this Committee recognizes that the Federal government has an obligation to meet its commitment to American homeowners and business owners who paid annual premiums into the National Flood Insurance Program. In addition, this bipartisan bill addresses significant reforms to enhance accountability and ensure the viability of the program for all policyholders across the country.”

The legislation would:

  • Commission a study by the Comptroller General to review mandatory purchase requirements for the natural 100-year floodplain and homeowners with non-federal loans, and the current state of pre-FIRM properties.

  • Phase-in of actuarial rates on vacation homes, second homes, and non-residential properties that have been subsidized by the program since its inception.

  • Increase the fines levied for non-enforcement of the mandatory purchase requirement from $350 to $2,000.

  • Increase the amount FEMA can raise rates in any given year from 10 percent to 15 percent.

  • Increase the 1994 coverage limits for residential flood insurance policies from $250,000 (structure) and $100,000 (contents) to $335,000/$135,000.  Nonresidential properties would see an increase from $500,000 to $670,000. These limits, which have not changed since the National Flood Insurance Reform Act of 1994, are adjusted for inflation.  

  • Add to basic flood policies a nominal amount for living expenses following a flooding event and allow for the purchase of additional coverage.  An optional business interruption provision is included to provide stability to local economies in areas affected by flood damage and to offset government disaster relief payments should a flood result in widespread destruction across a region. FEMA is also given the flexibility to offer coverage for finished basements and replacement cost of contents coverage at actuarially sound rates.

  • Increase FEMA’s borrowing authority to $25,000,000,000 in order to pay claims arising from catastrophic hurricanes in 2005 as well as other ongoing obligations.

  • Direct FEMA to establish the appeals process and mitigation programs and enforce the minimum training and education requirements mandated in the Flood Insurance Reform Act of 2004 and to report on their progress.  

  • Direct FEMA to report to Congress on the financial status of the NFIP twice a year.

  • Require lenders to provide notice that flood insurance is available to all homeowners, not just those in a designated floodplain, as well as notice of the ability to escrow for flood insurance.  

  • Extend the pilot program for mitigation of severe repetitive loss properties – as established in the Bunning-Bereuter-Blumenauer Reform Act of 2004 – to 2011.  This pilot program was not funded for the first two years for which it was authorized.

  • Direct FEMA to conduct a through review of the nation’s flood maps – including mapping of the 500-year floodplain - and report to Congress on mapping progress.  Requires FEMA to give priority to updating maps of the Hurricane Katrina and Hurricane Rita-affected areas.  Provides additional funds for mapping.

  • Authorize the hiring of additional FEMA staff to implement the bill’s provisions.

The following amendments were agreed to by voice votes:

An amendment offered by Rep. Debbie Wasserman Schultz (FL), would require FEMA to participate in non-binding state mediation proceedings

An amendment offered by Ranking Member Barney Frank (MA), would expedite the notification and publication of flood elevation procedures after flood-related disasters.

An amendment offered Rep. Gary G. Miller (CA), would cap the penalties against lenders who are required to ensure homeowners have flood insurance. It also provides for a good faith exemption to ensure lenders are not unfairly penalized due to administrative errors.

An amendment offered by Rep. Scott Garrett (NJ), would amend the report language in the bill to also consider the constitutionality of requiring home owners who do not have a federally backed mortgage to participate in the National Flood Insurance Program.

Source: House Financial Services Committee

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