After five years of stopgap extensions, there is bipartisan support for a long-term overhaul of the National Flood Insurance Program — at least in principle.
In practice, however, the program is no closer to a multiyear reauthorization or any substantial changes after its first dedicated hearing in more than three years. The House Financial Services Subcommittee on Housing, Community Development and Insurance discussed the matter Wednesday afternoon but made no indication of further action.
The current authorization for the NFIP expires on Sept. 30. Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America, told American Banker he is skeptical that a long-term agreement will be struck before then.
“There's a list of bills that are out there, but I'd be surprised if there's a markup on any of them anytime soon,” Haynie said. “There's just not a lot of momentum behind trying to do something to reform the NFIP.”
The NFIP, which provides subsidized insurance to homes and businesses in areas at high risk of flooding, has been granted roughly 20 short-term extensions since the end of the 2017 fiscal year. During that period it has temporarily lapsed multiple times.
The NFIP’s administrator, the Federal Emergency Management Agency, can continue providing insurance to policy holders if the program lapses, but it cannot issue new policies. Federal law prohibits lenders from issuing loans secured by assets in designated flood zones without flood insurance, so any disruption to the NFIP jeopardizes a significant segment of the originations market. Roughly 40,000 home sales a month require flood insurance, according to the National Association of Realtors.
Witnesses outlined several areas in which the NFIP has become outdated since its inception in the 1960s as well as matters that have arisen since its last legislative overhaul in 2012.
Karen McHugh, Missouri State NFIP coordinator, said the increased cost of compliance component of the program, which provides up to $30,000 to offset costs of mitigating flood risk, has become insufficient.
“The average cost to lift a house and replace the foundation is now pushing $100,000,” she said. “Increasing the ICC limit to at least $90,000 is long overdue to allow adequate funding for structures to be brought out of harm's way. Elevating or being removed from the high-risk flood area has been proven to save lives and property and taxpayer costs from the devastating effects of flooding.”
Roy Wright, former chief executive of the NFIP, raised a similar issue about FEMA’s $250,000 cap on combined coverage. With home values rising 300% since the policy was enacted almost three decades ago, he said it is Congress’s duty to adjust the coverage cap accordingly.
“When hurricanes make landfall in the United States this year, Americans who did the right thing and bought flood insurance will learn the consequences of being underinsured,” Wright said. “When the cost of rebuilding their home comes in at $370,000, and they only have $250,000 available in coverage, they will be underwater for the second time.”
Another concern for the program is its debt of more than $20 billion to the Treasury. Several witnesses and Rep. Emanuel Cleaver, D-Mo., the chair of the subcommittee on insurance, housing and community opportunity, advocated forgiveness of that debt.
“I just think it makes no sense whatsoever for us to walk around with a $20.5 billion indebtedness,” Cleaver said.
Other issues include addressing repetitive loss properties — which accounted for nearly one-third of FEMA flood damage payouts between 1978 and 2019 — as well as means-testing to allow lower premiums for lower-income individuals, factoring mitigation efforts into premiums and expediting the process of FEMA's acquisition of troubled properties.
Most of these issues are addressed in the five NFIP reform or reauthorization bills that have been drafted by committee members. Only one of those bills has been formally introduced, HR 7842. Authored by Rep. Sean Casten, D-Ill., the legislation would make it easier for policyholders to take a buyout in lieu of payment, put restrictions on coverage in repeat loss areas and enhance mitigation benefits.
Republicans on the subcommittee expressed similar concerns, but did not support the proposed legislation during Wednesday’s hearing. Rep. French Hill, R-Ark., also argued that it was important to take steps to open the flood insurance space up to the private market to increase competition, a matter not addressed by any of the current bills.
Hill, the ranking member on the subcommittee, expressed his dissatisfaction with recent legislative efforts by the committee by criticizing Rep. Maxine Waters, R-Calif., chair of House Financial Services Committee, for abandoning a bipartisan reauthorization bill in 2019.
“Chair Waters never got that bill to the floor and then abandoned the good-faith efforts and bipartisan work product by including, now, partisan flood reforms with zero Republican input that were in the Build Back Better Bill,” Hill said. “And we know how that ended.”
