House Republicans Preparing 5-Year Flood Insurance Reauthorization

Republican members of the House Financial Services Committee have developed their initial outline of a plan to overhaul and reauthorize the National Flood Insurance Program, which expires at the end of September.

Flood insurance is likely to be one of the panel’s heaviest legislative lifts in the coming months, now that the committee has advanced Chairman Jeb Hensarling’s plan to overhaul financial regulations from the 2010 Dodd-Frank Act.

Text of a draft proposal for flood insurance, provided to Morning Consult on Wednesday, shows that House Republicans are planning to reauthorize the NFIP for five years, and the discussion draft contain elements aimed at facilitating a transition to more private flood insurance plans while cracking down on the program’s finances.

Hensarling (R-Texas) has signaled for months that significant changes to federal flood insurance rules are high on his agenda. In a Nov. 16 speech to the Exchequer Club, he said Republicans will pass a bill “that begins the transition to a competitive, innovative and sustainable flood insurance market where consumers have real choices.”

That’s partly because the NFIP is more than $24 billion in debt. The figure ballooned largely because of a torrent of claims resulting from Hurricane Katrina and Superstorm Sandy. That prompted calls for reforms.

Congress last reauthorized the NFIP in 2012, under legislation promoted by then-Rep. Judy Biggert (R-Ill.) and Rep. Maxine Waters (Calif.), now the panel’s ranking Democrat. The program provides federally backed insurance plans in areas that are considered at a high risk of flood damage, making it a priority for lawmakers representing low-lying coastal areas.

A spokeswoman for Waters declined to comment on the GOP plan.

The draft contains provisions aimed at improving the program’s financial stability. GOP lawmakers are looking at increasing assessment rates and surcharges to bring more money into the program’s Flood Insurance Fund.

Assessments for the NFIP’s Reserve Fund would increase by 1 percent compounded annually if the program doesn’t receive funds that it’s required by law to collect, according to the draft. The Federal Emergency Management Agency, which administers the NFIP, would also be given tools aimed at decreasing “the chances of future borrowing from taxpayers by giving the NFIP the tools it needs to return to a strong financial footing while protecting homeowners.”

Additionally, the NFIP would be required to submit itself to an annual actuarial review to determine if its funding stream can cover losses projected on a long-term basis.

The proposal addresses financial pressures on the NFIP related to insurance claims. Four years after enactment of the legislation, the NFIP would be barred from selling policies for new structures in areas with the highest flood risk if private insurance plans aren’t already available.

At the four-year mark, the proposal would require the NFIP to adjust premium rates for existing properties “based on their real risk” and cease coverage of residential properties whose replacement cost are greater than $1 million.

The GOP plan also contains provisions aimed at making flood insurance more affordable for consumers. An existing cap on premium rate hikes would be lowered from 18 percent to 15 percent, while allowing policyholders to put money into savings accounts designed for people who want to “reduce or eliminate their NFIP premiums.”

Some of the proposals have bipartisan support. For example, the summary calls for including legislation backed by Florida Reps. Dennis Ross (R) and Kathy Castor (D) that would give state insurance agencies more authority to regulate private flood insurance providers. The House passed nearly identical legislation in April 2016 by a vote of 419-0. The Senate did not take up the measure.

The recent GOP proposal would change FEMA’s involvement in the flood mapping process. Flood mapping is a key method for determining risk, and current FEMA maps and processes have been criticized as being outdated.